Dollar weakness everywhere!

The US dollar has suffered across the board following last night’s announcement from the Fed that they will issue a further $600billion in a second round of quantitative easing (the figure could actually be closer to $850billion if you include the toxic debt reinvestment scheme).

In the wake of the announcement, sterling has risen to its highest level against the greenback in nine months, almost touching $1.63. The announcement of QEII in the states contrasted with the decision from the Bank of England. At midday, the BoE announced it had decided to keep interest rates and its asset buying programme steady, enabling sterling to rise over two cents on the session.

The euro rose to a session peak of $1.4281 against the US currency after a considered, but slightly optimistic speech from JC Trichet. The size of the new bailout package across the pond, combined with the ECB alluding to a slight upward pressure on the euro from inflation sent the single currency to its strongest position since mid January.

The aussie dollar finally found stability above parity with its US counterpart to a high of $1.0146, that’s right, one George Washington is now worth less than one Queen Elisabeth II (QEII spooky?). The combination of the highest interest rates in the G20, high commodity prices and insatiable demand from China has finally proven to be enough to break through the psychologically important parity level.

This spate of dollar weakness does present a fantastic buying opportunity, especially for those long of the aussie. With the US debacle sorted until next July (hopefully), expect to see a resurgence from the greenback in the future, especially when the eurozone is no longer capable of sweeping its increasing worries under the proverbial rug.

Tom Hampton

Analyst – Caxton FX

Sterling falls off the back of disappointing construction data

In contrast to yesterday’s manufacturing figures, today’s construction Purchasing Managers Index (PMI) came in worse than expected. Analysts were predicting a modest monthly fall in the index to 53.1, however, the figure came in at 51.6, down quite significantly from last month at 53.8.

Following the news that activity in Britain’s construction sector slowed to its weakest level for eight months, sterling has taken a dive. The survey suggests construction will not make as strong a contribution to growth in the fourth quarter as it did earlier in the year. Thin trading volumes ahead of statements from the UK, US and EU central banks tomorrow and Thursday could have exacerbated the losses.

In other news, a surprise decision by the Reserve Bank of Australia to raise interest rates to 4.75% has once again sent the aussie through parity with its US counterpart to hit $1.0022, its highest level ever recorded. With very strong fundamentals and growing exports to China, Australia stands in a very strong position. In fact very little seems able to stop the aussie at the moment. Let’s hope the autumn internationals see a different result.

Tom Hampton
Analyst – Caxton FX

Strong data supports sterling’s recent ascent

Sterling climbed against the US dollar and the euro following an unexpected rise in UK manufacturing data , which added weight to the UK’s economic recovery and dampened expectations that the Bank of England will extend quantitative easing.

Analysts were predicting the index would fall to 53.2, however, the Purchasing Managers Index (PMI) rose to 54.9 in October from 53.4 in September. The pound jumped to a session high of $1.6089 against the greenback and €1.1545 against the single currency.

The pleasing figure followed on from positive GDP data last week which showed that the economy grew by 0.8%, double the market’s expectation in Q3. This run of encouraging data from the UK economy all but confirms that the Bank of England will hold fire on further quantitative easing when the MPC meets later in the week (Thursday).

In other news, the currency market are generally quiet today with no big moves as investors wait to see what happens in the slew of announcements due later in the week. This is definitely the calm before the storm!

Tom Hampton
Analyst – Caxton FX

Sterling’s gains continue

Sterling is going for its fourth consecutive day of gains against the euro this week, briefly touching a three week high of €1.1519 earlier in the session.

The pound is continuing to outperform its peers after strong UK GDP figures earlier this week, helping to lower the risk of more monetary easing from the Bank of England. There was further good news for the UK this morning as a survey showed that UK consumers are more confident over their personal finances. Against the US dollar, the UK currency did start the day marginally down. However, a slightly worse than expected preliminary GDP figure at lunch time from the states has sent the pound higher to be trading just below $1.60.

In other news, next week we will see a raft of market moving data with central bank policy meetings due in the UK, US, Australia, Japan and China. Get ready for a bumpy ride and don’t forget to put your clocks back on Saturday night.
Have a good weekend.

Tom Hampton
Analyst – Caxton FX

Sterling makes gains stick

Sterling has spent most of the day with minimal gains against the majority of its peers, solidifying gains made on Tuesday. Against the US dollar, GBP is a full percent higher.

Better than expected GDP figures on Tuesday sent the pound skyrocketing to post the biggest daily gains it has seen since May. Since then, we have not seen any great swings. It appears for now like the gains are here to stay as the pound posted a modest gain yesterday and looks like doing the same today. Sterling is currently trading up above the €1.1450 level despite yet more disappointing housing data from Nationwide this morning.

Earlier in the week the US dollar did dust off its armour and join sterling in the battle against the euro. However, the greenback has failed to hold its reclaimed territory and has been driven back. The looming QEII decision next week seems to be too much for the USD to counter. However, it’s looking increasingly unlikely that the euro hoards can keep up their pretence for too much longer as fresh concerns over Greece’s debt issues are starting to show yet again [bond spreads widening]. The question is not necessarily if the dollar will rise again, it is more a question of when?

Tom Hampton
Analyst – Caxton FX

Sterling maintains 1.14 level after yesterday’s ascent

Sterling is holding its gains today after in the previous session it enjoyed its biggest climb against the euro since May this year.

The pound seems to be holding its ground against all of its counterparts except the US dollar. Against the euro, investors continue to pare expectations about the possibility of further monetary easing from the Bank of England. Positive comments from S&P about the health of the UK economy have also helped to keep the UK currency around €1.1450.

The greenback is making up ground today after a Wall Street Journal article stated that the Fed was likely to “gradually” introduce stimulus measures at their next meeting, rather than the $500bn that the market has been pricing in. Many investors are beginning to see this as a turning point for the US currency as the looming second round of quantitative easing has now been priced in and as problems in the eurozone start to gain headlines once again.

In other news, the aussie’s rally has lost steam momentarily after surprisingly tame inflation data led investors to doubt the central bank would raise interest rates next week.

Tom Hampton

Analyst – Caxton FX

Better than expected UK GDP figure puts a spring in sterling’s step

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

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?

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

‘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