Against the euro, sterling remains at the lower end of its estimated range this month (between 1.19-1.2150) which is also near a seven week low after a raft of weak economic data confirmed a patchy UK recovery.
Bank of England data showed lending to UK businesses fell for the fifth straight month in July and data from Rightmove, also showed property asking prices in England and Wales fell for a third consecutive month in September.
Having had a relatively bullish few months after the general election, UK data seems to be softening as we move into what is going to be a very difficult Q4 globally. Fears are mounting over the looming austerity measures set out by the chancellor earlier this year and the damaging effects they could have on the UK economy next year.
In other news, despite the Bank of Japan and the Swiss central bank’s best efforts to de-value their respective currencies, they have both made considerable gains across the board. Could this prompt more severe reaction from both institutions?
Tom Hampton
Analyst-Caxton fx
Monday, 20 September 2010
Thursday, 16 September 2010
Poor UK data sends sterling lower
Following a similar pattern to yesterday, the pound fell yet again this morning touching the same seven week low as yesterday against the euro. This followed data showing UK retail sales unexpectedly fell in August for the first time in 6th months, while strong demand at a Spanish auction lifted the single currency. Expect this pairing to not deviate to far from the €1.20 mark.
UK retail sales fell by 0.5% in August, surprising analysts who had forecast a modest increase of 0.3% after several months of solid growth. The data shows that UK consumers may be reining in spending ahead of substantial spending cuts planned by the government later in the year. Duncan Higgins, senior analyst at Caxton FX comments, “The data rather confirms fears that the UK economy is set to post a disappointing GDP figure for the third quarter. Food, fuel, clothing, and household good sales all made moderate declines in August as consumers tighten their pockets ahead of what is set to be a tough end to the year.”
Mervyn King, the Governor of the Bank of England in a speech yesterday reiterated the fact that if conditions continue to deteriorate further, the BoE are prepared to step into action with further quantitative easing.
In other news, a decision by the Swiss Central Bank to keep interest rates steady at 0.25%, along with a dovish statement has sent the franc lower against most of its peers. This could be a measure to devalue the currency after its meteoric rise of late.
UK retail sales fell by 0.5% in August, surprising analysts who had forecast a modest increase of 0.3% after several months of solid growth. The data shows that UK consumers may be reining in spending ahead of substantial spending cuts planned by the government later in the year. Duncan Higgins, senior analyst at Caxton FX comments, “The data rather confirms fears that the UK economy is set to post a disappointing GDP figure for the third quarter. Food, fuel, clothing, and household good sales all made moderate declines in August as consumers tighten their pockets ahead of what is set to be a tough end to the year.”
Mervyn King, the Governor of the Bank of England in a speech yesterday reiterated the fact that if conditions continue to deteriorate further, the BoE are prepared to step into action with further quantitative easing.
In other news, a decision by the Swiss Central Bank to keep interest rates steady at 0.25%, along with a dovish statement has sent the franc lower against most of its peers. This could be a measure to devalue the currency after its meteoric rise of late.
Wednesday, 15 September 2010
Sterling rebounds from early losses
Sterling touched a seven week low against the euro and fell against the dollar after a surprise rise in claimant figures fed concerns over the UK economic outlook.
Data released this morning showed the number of people claiming unemployment benefit rose by 2,300 in August. It is the first rise since January and went against expectations of a fall of 4,100. The rise comes as public sector departments begin redundancy programmes ahead of this autumn’s spending review. The figures confirm that the UK recovery is still in the balance, and despite the persistently high level of inflation, the Bank of England remains poised to act if the recovery starts to waiver.
In other news, the Japanese yen has tumbled over 3% against both the US dollar and the pound after the Japanese government intervened by unilaterally selling the yen to curb gains that threaten the export-led recovery. This was the first time since 2004 that the government had intervened.
Data released this morning showed the number of people claiming unemployment benefit rose by 2,300 in August. It is the first rise since January and went against expectations of a fall of 4,100. The rise comes as public sector departments begin redundancy programmes ahead of this autumn’s spending review. The figures confirm that the UK recovery is still in the balance, and despite the persistently high level of inflation, the Bank of England remains poised to act if the recovery starts to waiver.
In other news, the Japanese yen has tumbled over 3% against both the US dollar and the pound after the Japanese government intervened by unilaterally selling the yen to curb gains that threaten the export-led recovery. This was the first time since 2004 that the government had intervened.
Tuesday, 7 September 2010
Euro takes a hit
It was beginning to look as though an unnerving quiet had descended over the eurozone, with market attention recently focused on the short comings of the US and UK economy. But the problems have resurfaced today with investors picking up on an article from the Wall Street Journal that questioned the viability of the so-called stress tests for European banks that were held over the summer.
The report has taken the single currency broadly lower today, slipping over a cent against the US dollar. To be honest, at $1.29, the euro was looking over bought and would’ve been an attractive level at which to sell. Rumours that even German banks may need up to €100bn in additional capital has further undermined the improved confidence in the euro.
Sterling is now sitting back at €1.20, which appears a relatively comfortable level for the pair at present.
The report has taken the single currency broadly lower today, slipping over a cent against the US dollar. To be honest, at $1.29, the euro was looking over bought and would’ve been an attractive level at which to sell. Rumours that even German banks may need up to €100bn in additional capital has further undermined the improved confidence in the euro.
Sterling is now sitting back at €1.20, which appears a relatively comfortable level for the pair at present.
Wednesday, 1 September 2010
Sterling starts the long climb back
Sterling is starting to claw back losses from the morning session when the pound fell against most of its peers, hitting a three week low against the euro following disappointing figures from the UK’s manufacturing industry.
A Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August from 56.9 in July (a figure above 50 shows a growth in activity) its lowest level since November last year.
In other news, the US dollar extended its losses, pushing the euro up over 1% on the day, as positive data from Australia and China revived shaky equity markets and gave a boost to risk sentiment. The greenback also fell to its lowest level against the Swiss franc since December 2009.
A Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August from 56.9 in July (a figure above 50 shows a growth in activity) its lowest level since November last year.
In other news, the US dollar extended its losses, pushing the euro up over 1% on the day, as positive data from Australia and China revived shaky equity markets and gave a boost to risk sentiment. The greenback also fell to its lowest level against the Swiss franc since December 2009.
Tuesday, 31 August 2010
Sterling at a 5 week low against the dollar
Despite last week’s the upward revision of the UK’s second quarter GDP to 1.2% from 1.1, sterling has suffered significant losses against the safe-haven currencies today. The pound is at a 5-week low against the US dollar as we see investors look for refuge due to on-going worries about the global economic recovery. Sterling fell as low as $1.5366 this morning after disappointing home sales figures from the US at the end of last week.
Of the safe-haven currencies, the Swiss franc seems to be the biggest winner today hitting a life time high against the euro (and 10-month high against sterling). The franc is up against the dollar and yen as continuing bad results from the states and government intervention to deflate the yen make the franc the low-yielding currency of choice.
In other news, going against the trend of safe-haven strength, the euro is up almost 1% against the pound as traders look to close out short positions at month end.
Of the safe-haven currencies, the Swiss franc seems to be the biggest winner today hitting a life time high against the euro (and 10-month high against sterling). The franc is up against the dollar and yen as continuing bad results from the states and government intervention to deflate the yen make the franc the low-yielding currency of choice.
In other news, going against the trend of safe-haven strength, the euro is up almost 1% against the pound as traders look to close out short positions at month end.
Thursday, 26 August 2010
Sterling going for its second straight day of gains
Sterling is up against most of its major peers today with the dollar under pressure following yet more weak economic data, and the euro losing ground after Ireland suffered a credit rating downgrade from S&P.
The greenback lost ground following another round of disappointing housing figures for July as well as weaker than expected durable goods orders. In contrast to data from the peripheral eurozone countries, strong IFO figures from Germany gave the euro a brief lift. Positive CBI sales figures from the UK helped to send sterling higher.
In other news, the Japanese yen is losing more ground as speculation builds that the Japanese authorities will go beyond verbal intervention to curb the strength of the yen.
The greenback lost ground following another round of disappointing housing figures for July as well as weaker than expected durable goods orders. In contrast to data from the peripheral eurozone countries, strong IFO figures from Germany gave the euro a brief lift. Positive CBI sales figures from the UK helped to send sterling higher.
In other news, the Japanese yen is losing more ground as speculation builds that the Japanese authorities will go beyond verbal intervention to curb the strength of the yen.
US GDP faces downward revision, stirring Fed into action
A report tomorrow is due to reveal a sharp downward revision to second quarter growth in the world’s largest economy.
The market is expecting to see US GDP (which is reported on an annualised basis) revised down significantly from an initial estimate of 2.4% to just 1.5%. This update will mark a low point amid a lengthening run of disappointing figures from the US economy and could be the catalyst for Fed intervention.
Duncan Higgins, senior analyst at Caxton FX comments, “The market has long been speculating that the Fed will need to add further stimulus to avoid falling back into recession. Positive news has been thin on the ground for some time and already estimates are suggesting that third quarter GDP is likely to be a lot lower if not negative. Recovery in both the housing and labour market has all but stalled and there is a good chance that a downward revision to GDP will spark further intervention from the Fed.”
World leaders have begun a meeting today in the US to discuss the notion of further monetary easing, with both the Japanese and eurozone economies also showing renewed recessionary pressures.
“Direct monetary stimulus could still be a few weeks away, but the conclusion of the meeting may well reveal that central banks are gearing up to take action. Hints of that nature are likely to cement the already risk adverse sentiment widespread in the market,” continues Higgins.
For the US dollar, the data tomorrow may be tricky to fathom. The traditional risk-on, risk-off scenario has broken down recently.
Higgins adds, “Investors are still trying to decide whether to sell the dollar on negative data on buy it up as a safe haven. The yen and Swiss franc have been preferable currencies of late. However, we expect the market to swing towards risk aversion, particularly if the Fed is not alone in a decision to extend quantitative easing measures.”
“At present the euro is trading above $1.27, but we doubt that the price will sustain these highs going into the weekend. Sterling also looks risky at its current level above $1.55. However, no revision is expected to the UK’s 1.1% second quarter growth rate and this should prevent the pound from sliding,” concludes Higgins.
The market is expecting to see US GDP (which is reported on an annualised basis) revised down significantly from an initial estimate of 2.4% to just 1.5%. This update will mark a low point amid a lengthening run of disappointing figures from the US economy and could be the catalyst for Fed intervention.
Duncan Higgins, senior analyst at Caxton FX comments, “The market has long been speculating that the Fed will need to add further stimulus to avoid falling back into recession. Positive news has been thin on the ground for some time and already estimates are suggesting that third quarter GDP is likely to be a lot lower if not negative. Recovery in both the housing and labour market has all but stalled and there is a good chance that a downward revision to GDP will spark further intervention from the Fed.”
World leaders have begun a meeting today in the US to discuss the notion of further monetary easing, with both the Japanese and eurozone economies also showing renewed recessionary pressures.
“Direct monetary stimulus could still be a few weeks away, but the conclusion of the meeting may well reveal that central banks are gearing up to take action. Hints of that nature are likely to cement the already risk adverse sentiment widespread in the market,” continues Higgins.
For the US dollar, the data tomorrow may be tricky to fathom. The traditional risk-on, risk-off scenario has broken down recently.
Higgins adds, “Investors are still trying to decide whether to sell the dollar on negative data on buy it up as a safe haven. The yen and Swiss franc have been preferable currencies of late. However, we expect the market to swing towards risk aversion, particularly if the Fed is not alone in a decision to extend quantitative easing measures.”
“At present the euro is trading above $1.27, but we doubt that the price will sustain these highs going into the weekend. Sterling also looks risky at its current level above $1.55. However, no revision is expected to the UK’s 1.1% second quarter growth rate and this should prevent the pound from sliding,” concludes Higgins.
Wednesday, 25 August 2010
Sterling re-coups early losses
The UK currency was near a one month low against the dollar after yesterday’s stock market move downwards.
Positive data from Germany showing the Ifo index hit a three year high has given the euro and pound a much needed boost against the dollar. However, as we saw in yesterday’s trading, these gains are expected to be short lived as lingering worries about the US slowdown and EU debt worries will ultimately allow safe haven currencies to shine through.
Paradoxically, the Japanese yen has fallen against most of its major peers, including falling from a fifteen year high against the US dollar, on speculation the Bank of Japan will intervene to keep exports more attractive.
Positive data from Germany showing the Ifo index hit a three year high has given the euro and pound a much needed boost against the dollar. However, as we saw in yesterday’s trading, these gains are expected to be short lived as lingering worries about the US slowdown and EU debt worries will ultimately allow safe haven currencies to shine through.
Paradoxically, the Japanese yen has fallen against most of its major peers, including falling from a fifteen year high against the US dollar, on speculation the Bank of Japan will intervene to keep exports more attractive.
Tuesday, 24 August 2010
MPC member’s comments turn sterling to the downside
MPC newcomer Martin Weale said in an interview in the Times that the UK faces a ‘real risk’ of a double dip recession. Although this sentiment is nothing new after the BoE’s re-alignment of growth expectation earlier this month, its reiteration, thin summer trading volumes and the markets hunger for safe-haven investment have sent sterling down against most of its peers.
Recently, the demand for ‘refuge’ currencies has brought the pound down from a nine month high against the greenback, with the price now back down at $1.54 and talk in the market that this bear run could take it as low as $1.50. Although sterling fell against the single currency today, we expect the UK currency to return to €1.53 in the near term as the eurozone’s debt crisis comes back into focus.
Recently, the demand for ‘refuge’ currencies has brought the pound down from a nine month high against the greenback, with the price now back down at $1.54 and talk in the market that this bear run could take it as low as $1.50. Although sterling fell against the single currency today, we expect the UK currency to return to €1.53 in the near term as the eurozone’s debt crisis comes back into focus.
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