Sterling has bounced back against all of its major counterparts posting daily highs of $1.5894 and €1.1421 against the US dollar and euro respectively.
A better than expected reading of 0.8% growth for the UK economy in Q3 was due to come in at only 0.4%. This helped to dampen speculation the Bank of England may soon implement more quantitative easing. The positive Q3 data came after a stellar Q2 reading of 1.2%, suggesting that the UK economy is more robust than previously thought as the government prepares to implement austerity measures across the board, which were outlined last week.
The pound’s rally gained further momentum as the ratings agency S&P revised its outlook on the UK economy to ‘stable’ from ‘negative.’ This helped to give further assurance over the strength of the UK’s economy.
However, sterling’s mini-recovery could be short lived as notorious dove/doomsday prophet/MPC member Adam Posen is due to give a speech in Belfast at 5pm. If he decides that another rant outlining that monetary easing is the only thing to save the UK economy, we could see GBP sold-off late in the New York session.
In other news, Paul the psychic octopus has died aged two and a half. Paul’s uncanny knack for correct predictions would be very helpful on the rollercoaster that is the global currency market at the moment. R.I.P to the greatest analyst of all time!
Tom Hampton
Analyst – Caxton FX
Tuesday, 26 October 2010
Monday, 25 October 2010
G20 hails a result for minnows
The US dollar has been sold across the board today as the G20 meeting over the weekend came to the agreement to shun competitive currency devaluation.
At the meeting in South Korea (nicely timed for corporate hospitality at the grand prix), a surprise deal was struck to give emerging nations a bigger voice in the IMF, recognising the power shift away from the traditional West. This recognition of a new ‘world order’ could be exacerbated by the dichotomy of what will happen over the next twelve months. As stated before, it is the developing nations of the East and South America that will be the driving engines to pull the world economy through these dark days. Whereas, the established West (US, EU and UK) languishes in their own self-pity and inability to compete. Action needs to be taken, but will extra monetary stimulus be enough to answer the West’s prayers? Governments need to help prop up private enterprise, after all it is these companies and their employees that pay the taxes.
In other news, sterling has hit a 7 month low against the euro today on concerns that the Bank of England may be veering towards more monetary easing to revive the flagging economy. However, if the rate of inflation stay at 3% or higher, can Mervyn and the boys really ‘print’ more money and artificially inflate the economy?
At the meeting in South Korea (nicely timed for corporate hospitality at the grand prix), a surprise deal was struck to give emerging nations a bigger voice in the IMF, recognising the power shift away from the traditional West. This recognition of a new ‘world order’ could be exacerbated by the dichotomy of what will happen over the next twelve months. As stated before, it is the developing nations of the East and South America that will be the driving engines to pull the world economy through these dark days. Whereas, the established West (US, EU and UK) languishes in their own self-pity and inability to compete. Action needs to be taken, but will extra monetary stimulus be enough to answer the West’s prayers? Governments need to help prop up private enterprise, after all it is these companies and their employees that pay the taxes.
In other news, sterling has hit a 7 month low against the euro today on concerns that the Bank of England may be veering towards more monetary easing to revive the flagging economy. However, if the rate of inflation stay at 3% or higher, can Mervyn and the boys really ‘print’ more money and artificially inflate the economy?
Friday, 22 October 2010
G20 meeting this weekend
The market seems fairly stable today as investors are hesitant to take out positions ahead of this weekend’s G20 meeting between the world’s financial leaders.
The US is raising the stakes in calling for countries to avoid using their currencies to gain economic advantage. US Treasury Secretary Tim Geithner, in a letter to the G20 finance pointed out that ‘emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals.’ Of course, every financial leader of emerging economies will be looking to poopoo this as a weaker currency makes their exports much more attractive.
Leaders of more developed economies will be looking to strike some kind of accord to secure this agreement in principle, however pushing it through will be a lot harder in practice. It is highly unlikely that a binding agreement will be reached this weekend as heads of the developing economies will protest about the ability of countries such as the US and the UK to structure huge bailout packages.
In other news, sterling’s decline continues as it faces a sixth straight week lower against the euro. With the downward pressure associated with that fateful phrase “quantitative easing” in the UK and US showing little signs of abating, this trend is set to continue at least ahead of the Fed’s Nov 3rd meeting. Maybe if the French can protest for long enough, the eurozone’s debt issues will take their rightful place at the fore of the market’s focus.
Have a good weekend!
Tom Hampton
Analyst – Caxton FX
The US is raising the stakes in calling for countries to avoid using their currencies to gain economic advantage. US Treasury Secretary Tim Geithner, in a letter to the G20 finance pointed out that ‘emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals.’ Of course, every financial leader of emerging economies will be looking to poopoo this as a weaker currency makes their exports much more attractive.
Leaders of more developed economies will be looking to strike some kind of accord to secure this agreement in principle, however pushing it through will be a lot harder in practice. It is highly unlikely that a binding agreement will be reached this weekend as heads of the developing economies will protest about the ability of countries such as the US and the UK to structure huge bailout packages.
In other news, sterling’s decline continues as it faces a sixth straight week lower against the euro. With the downward pressure associated with that fateful phrase “quantitative easing” in the UK and US showing little signs of abating, this trend is set to continue at least ahead of the Fed’s Nov 3rd meeting. Maybe if the French can protest for long enough, the eurozone’s debt issues will take their rightful place at the fore of the market’s focus.
Have a good weekend!
Tom Hampton
Analyst – Caxton FX
Wednesday, 20 October 2010
‘Hard road leads to a better future’
Just one of the chancellor’s quotes from today’s government spending review. The market seems to believe it does lead to a brighter future as sterling remains within range of where it was before George Osborne opened his mouth.
Despite the pound’s seesaw journey during this afternoon’s session in parliament, it has come out relatively unscathed. This either suggests that the market believes in what the government had to say, or, more likely, has already priced in the potential adverse affects (the other suggestion is that the review had little of any real substance!). The truth is probably somewhere in the grey middle. Most of the spending cuts had been accounted for. However, the crocodiles teeth I have been tracing for the UK currency against its peers on my screen for the past 2 hours tell a different story. If it was all priced in why was there so much volatility?
The truth is this: the next 18 months can go one of two ways. The bleakest view is for most of the west to suffer a double dip. A dire Q4 could put the UK back in recession with stubbornly high inflation and plenty of SME’s going under. It would be a long and slow road to recovery led by the east and a weak UK currency to try and boost exports.
The second scenario would be for the west to narrowly avoid recession with some economies following Japan into stagflation. The recovery would be led by the east (again), the UK’s austerity measures gain traction and market confidence grows, bringing foreign investment and inflates sterling.
Either way, we will see a series of troughs and peaks before we are out of the woods. With the government cutting costs to the tune of £81billion and a VAT hike on the horizon, the UK will be looking to private business to pull us through. The banks need to start lending again, however, with a banking levy on the cards, how likely is that?
Tom Hampton
Analyst – Caxton FX
Despite the pound’s seesaw journey during this afternoon’s session in parliament, it has come out relatively unscathed. This either suggests that the market believes in what the government had to say, or, more likely, has already priced in the potential adverse affects (the other suggestion is that the review had little of any real substance!). The truth is probably somewhere in the grey middle. Most of the spending cuts had been accounted for. However, the crocodiles teeth I have been tracing for the UK currency against its peers on my screen for the past 2 hours tell a different story. If it was all priced in why was there so much volatility?
The truth is this: the next 18 months can go one of two ways. The bleakest view is for most of the west to suffer a double dip. A dire Q4 could put the UK back in recession with stubbornly high inflation and plenty of SME’s going under. It would be a long and slow road to recovery led by the east and a weak UK currency to try and boost exports.
The second scenario would be for the west to narrowly avoid recession with some economies following Japan into stagflation. The recovery would be led by the east (again), the UK’s austerity measures gain traction and market confidence grows, bringing foreign investment and inflates sterling.
Either way, we will see a series of troughs and peaks before we are out of the woods. With the government cutting costs to the tune of £81billion and a VAT hike on the horizon, the UK will be looking to private business to pull us through. The banks need to start lending again, however, with a banking levy on the cards, how likely is that?
Tom Hampton
Analyst – Caxton FX
Tuesday, 19 October 2010
Return of the buck
The US dollar is up against all of its major counterparts today, over 1% higher against both sterling and the euro at $1.5730 and €1.3800 respectively.
In a surprise move, the People’s Bank of China raised it’s one year lending and deposit rate by 0.25%. The first rate increase in nearly three years. This caused the commodity linked currencies (which are predominantly also the higher yielding currencies) to fall sharply as investors looked to move their assets back into the potentially undervalued greenback.
The US currency’s rally is an extension of earlier gains, which came after US Treasury Secretary Tim Geithner said the US would not be engaging in dollar devaluation and needed to work hard to preserve confidence in a strong dollar.
The greenback has not only clawed back heavy losses suffered over the past few weeks against the commodity driven currencies, but it has also made substantial gains against other safe-haven currencies. Against the Swiss franc, USD is up almost 1.5%, and is also trading higher against the yen, moving away from 15 year lows.
In other news, all eyes are on the UK government’s spending review which will officially be released tomorrow. With news leaked that the new £2.2billion HMS Ark Royal has been scrapped from the defence budget, maybe QE2 will take its place?
Tom Hampton
Analyst – Caxton FX
In a surprise move, the People’s Bank of China raised it’s one year lending and deposit rate by 0.25%. The first rate increase in nearly three years. This caused the commodity linked currencies (which are predominantly also the higher yielding currencies) to fall sharply as investors looked to move their assets back into the potentially undervalued greenback.
The US currency’s rally is an extension of earlier gains, which came after US Treasury Secretary Tim Geithner said the US would not be engaging in dollar devaluation and needed to work hard to preserve confidence in a strong dollar.
The greenback has not only clawed back heavy losses suffered over the past few weeks against the commodity driven currencies, but it has also made substantial gains against other safe-haven currencies. Against the Swiss franc, USD is up almost 1.5%, and is also trading higher against the yen, moving away from 15 year lows.
In other news, all eyes are on the UK government’s spending review which will officially be released tomorrow. With news leaked that the new £2.2billion HMS Ark Royal has been scrapped from the defence budget, maybe QE2 will take its place?
Tom Hampton
Analyst – Caxton FX
Monday, 18 October 2010
Sterling awaits Wednesday’s MPC minutes
With the calendar quiet on the data front, sterling has fallen by more than half a percent against the US dollar to trade just above the $1.59 level and has also lost ground to the euro, dropping below €1.14.
The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.
The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.
In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.
Tom Hampton
Analyst - Caxton FX
The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.
The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.
In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.
Tom Hampton
Analyst - Caxton FX
Thursday, 14 October 2010
Sterling breaches $1.60 as dollar slumps
In a day short in economic data or announcements, sterling reached an eight month high against the US dollar to hit briefly hit a rate of $1.6065.
The catalyst for heavy selling pressure on the greenback came from Asia overnight as the Monetary Authority of Singapore opted to tighten policy by appreciating their currency and selling the US dollar. Further speculation that the Fed will pump an extra $500billion put even more pressure on the greenback and the UK currency looks like it could hover around the $1.60 level for some time. Whilst all of this dollar selling has been going on, the pound stayed close to its weakest level in almost six months against the euro as concerns that the Bank of England could follow the Fed and increase its monetary easing policy.
In other news, the Australian dollar has powered to a new 28-year high to nearly hit parity with the greenback, its strongest level since it was allowed to freely float in 1983 hitting $0.9992 earlier today. It looks like parity is only a matter of time now. In fact, the aussie has risen 66% in 24 months. Good on ya, you flaming galah!
Tom Hampton
Analyst – Caxton FX
The catalyst for heavy selling pressure on the greenback came from Asia overnight as the Monetary Authority of Singapore opted to tighten policy by appreciating their currency and selling the US dollar. Further speculation that the Fed will pump an extra $500billion put even more pressure on the greenback and the UK currency looks like it could hover around the $1.60 level for some time. Whilst all of this dollar selling has been going on, the pound stayed close to its weakest level in almost six months against the euro as concerns that the Bank of England could follow the Fed and increase its monetary easing policy.
In other news, the Australian dollar has powered to a new 28-year high to nearly hit parity with the greenback, its strongest level since it was allowed to freely float in 1983 hitting $0.9992 earlier today. It looks like parity is only a matter of time now. In fact, the aussie has risen 66% in 24 months. Good on ya, you flaming galah!
Tom Hampton
Analyst – Caxton FX
Wednesday, 13 October 2010
Poor consumer confidence data hinders sterling
Sterling hit a five month low of €1.1315 against the euro this morning following UK data revealing a decline in consumer confidence, but gained against the dollar as the minutes from the Fed’s latest meeting all but confirmed expectations of additional stimulus measures in the near term.
Although hitting a low early on, the pound has recovered slightly in early afternoon trade whilst remaining within a comparatively tight range. Mixed labour market figures, slightly worse than expected consumer confidence postings and the news that Standard Chartered Bank will be launching a $5.3billion rights issue (forcing overseas investors to buy the UK currency) have not given much direction. Investors are waiting for larger macro policy decisions from central banks (particularly on the question of QE) before they move away from current positions.
Also of note today has been the single currency’s inability to break through the glass ceiling of $1.40 at what is now its fourth time of asking. This barrier appears to be quite a large watershed, dividing opinion on where the US dollar and the euro will go. If the resistance level persists for too much longer, we could see a resurgence in support for the greenback and the exiting of long positions in the sixteen-nation currency. However, with QE2 increasingly looking like a question of ‘when,’ not ‘if’ in the US, the more likely outcome will be a breakout to $1.43/45 for the euro when the Fed restarts its programme of “printing money.”
Tom Hampton
Analyst – Caxton FX
Although hitting a low early on, the pound has recovered slightly in early afternoon trade whilst remaining within a comparatively tight range. Mixed labour market figures, slightly worse than expected consumer confidence postings and the news that Standard Chartered Bank will be launching a $5.3billion rights issue (forcing overseas investors to buy the UK currency) have not given much direction. Investors are waiting for larger macro policy decisions from central banks (particularly on the question of QE) before they move away from current positions.
Also of note today has been the single currency’s inability to break through the glass ceiling of $1.40 at what is now its fourth time of asking. This barrier appears to be quite a large watershed, dividing opinion on where the US dollar and the euro will go. If the resistance level persists for too much longer, we could see a resurgence in support for the greenback and the exiting of long positions in the sixteen-nation currency. However, with QE2 increasingly looking like a question of ‘when,’ not ‘if’ in the US, the more likely outcome will be a breakout to $1.43/45 for the euro when the Fed restarts its programme of “printing money.”
Tom Hampton
Analyst – Caxton FX
Tuesday, 12 October 2010
From hawk to sitting on the fence
Sterling fell to a one week low against the US dollar to bottom out at $1.5797 for the day.
Downbeat comments from David Miles, an MPC member, today helped to fan more flames about monetary easing for the UK economy. In a statement this morning, Miles said that ‘quantitative easing remains a potentially powerful tool and one that we might come to use.’ These comments came after his Dublin speech in which Miles outlined the difficulty policy makers face at the moment of not doing enough to curb inflation and being sure not to tighten policy too soon, killing the fragile recovery. The change in sentiment from these two statements could mirror the increasing concern within the Bank of England about the state of the UK economy.
The key data today was UK inflation, but the figure, 3.1%, was in line with expectations had had little lasting impact on price movements. The level has now been above the Bank’s 2% target for 10 consecutive months but the BoE remain of the stance that it will fall back over the medium term.
In other news, declining global equity markets have added to risk aversion enabling the greenback to make a slight comeback along with gold hitting yet another all time high currently trading over $1350 per troy ounce.
Downbeat comments from David Miles, an MPC member, today helped to fan more flames about monetary easing for the UK economy. In a statement this morning, Miles said that ‘quantitative easing remains a potentially powerful tool and one that we might come to use.’ These comments came after his Dublin speech in which Miles outlined the difficulty policy makers face at the moment of not doing enough to curb inflation and being sure not to tighten policy too soon, killing the fragile recovery. The change in sentiment from these two statements could mirror the increasing concern within the Bank of England about the state of the UK economy.
The key data today was UK inflation, but the figure, 3.1%, was in line with expectations had had little lasting impact on price movements. The level has now been above the Bank’s 2% target for 10 consecutive months but the BoE remain of the stance that it will fall back over the medium term.
In other news, declining global equity markets have added to risk aversion enabling the greenback to make a slight comeback along with gold hitting yet another all time high currently trading over $1350 per troy ounce.
Friday, 8 October 2010
US non-farm figures turn out worse than expected
The US non-farm employment change was expected to nudge into positive territory this month, however a 95,000 drop in employment was revealed.
This surprise figure had an initial shock effect sending the dollar down to the day’s low of £0.6278 from £0.6305 against the pound and to a fresh fifteen year low against the yen below 82yen. However, since the data was published the greenback did stage a short recovery as investors sold their short dollar positions ahead of the long US weekend.
In other news, look out this weekend as the G7 and IMF meetings will no doubt be centred around the ‘currency wars’ that showing signs of breaking out between the higher yielding currencies, in particular the Brazilian real, in an attempt to keep their exports competitive on the world stage. Another hot topic will be the increasing discomfort bigger players in the currency market are feeling from the painfully slow appreciation of the Chinese yuan. You have to feel sorry for the German export market as the euro has increased in value by almost 10% in just one month making the relative price of Chinese exports that much cheaper by comparison.
Tom Hampton
Analyst - Caxton FX
This surprise figure had an initial shock effect sending the dollar down to the day’s low of £0.6278 from £0.6305 against the pound and to a fresh fifteen year low against the yen below 82yen. However, since the data was published the greenback did stage a short recovery as investors sold their short dollar positions ahead of the long US weekend.
In other news, look out this weekend as the G7 and IMF meetings will no doubt be centred around the ‘currency wars’ that showing signs of breaking out between the higher yielding currencies, in particular the Brazilian real, in an attempt to keep their exports competitive on the world stage. Another hot topic will be the increasing discomfort bigger players in the currency market are feeling from the painfully slow appreciation of the Chinese yuan. You have to feel sorry for the German export market as the euro has increased in value by almost 10% in just one month making the relative price of Chinese exports that much cheaper by comparison.
Tom Hampton
Analyst - Caxton FX
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