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Late trading yesterday on Wall Street and in Asian equities pushed up commodities; crude oil moved up 3.4%, copper and Gold also gained. This reflected increased risk sentiment in the markets. This helped lead to the usual swings in the markets with the USD and Yen broadly sold; EUR/USD pushed back up to 1.41, GBP/USD pushed over the 1.66 resistance level to a high of 1.6743 and GBP/EUR pushed through 1.18 to a high of 1.1850.

Sterling is also being underpinned by healthy data out overnight and this morning. UK Gfk consumer confidence data came in at -25, this is the highest reading in 15 months; in addition UK nationwide house price data was penned at +0.9% month on month. The house price data was a nice surprise for sterling as the market was expecting a drop of 0.5% following the 0.4% drop in May- naturally the report is still noting caution on the data but it does add to the sentiment that we are seeing a bottoming out in house price falls. Expect a little caution on sterling ahead of the GDP data at 09:30, if we see a good number here we could test further on the upside against the EUR and USD.

Look out for data from the US later in the form of consumer confidence and the Chicago Purchasing Managers Index, again if we see good data this should help the risk appetitie sentiment and fuel further sellling of USD. We also have the Tankan survey from the Bank Of Japan later tonight which highlights forecasts for growth in the manufacturing sector, this is released against the backdrop of the jobless rate in Japan posting a 5 year high. An improvement is expeceted but given the weak jobless data and improved sentiment we could see the Yen weakne further along with the USD.

Yesterday Bernard Madoff the disgraced financier was jailed for 150 years for orchestrating the $65 bn fraud. The heavy sentence is a little pointless given that he is 71 years old, however it does reflect the severity of the crime and certainly sends a message to would be fraudsters…

No major shifts in the markets as we maintain range trading across the board. Sterling has remained firm against the USD and has pushed up against the euro to 1.1780; surprising really as an article in the Telegraph noted that Britain’s national debt will quadruple according to Standard & Poor’s- that is unless drastic steps are taken. The ratings agency is predicting that public sector debt could hit post war levels of 200pc of economic output…this will turn huge attention to election pledges for the next parliamentary term- although rhetoric will not suffice and these pledges will need to be followed with hard action to maintain the AAA rating.

The USD is caught in no mans land as sentiment is helping the USD weaken and at the same time further comments from China that there will be no sudden change in China’s reserve policy helped it firm; this was more noticeable against the euro and the USD worked back from the 1.41 level to 1.40. Some very interesting stances on the USD in relation to forecasts are developing- it seems there is a real divide between USD strength and further weakness. The dollar bulls are looking at the US dollar to gain as a safe haven on a prolonged slowdown and if the economy turns the corner the US will be ahead of the curve and that will lead to USD strength. The dollar bears fear that suggested growth in the US is unfounded and high debt and low consumption will weaken the USD; also in this scenario a lack of confidence for the USD as a safe haven will no doubt heighten. The bulls are looking for EUR/USD to close the year at 1.50 and the bears 1.20 on EUR/USD.

Data released from Japan showed that industrial output increased by 5.9% in May compared to April; a good number which is the third rise in a row for Japan but still 30% lower than the previous year and there is a fear that this momentum could slip in the coming months.

Looking at the week ahead for the UK we have Gfk consumer confidence overnight and Nationwide house price data tomorrow morning followed by UK GDP for the first quarter. Other important data releases will focus on the ECB interest rate meeting on Thursday and unemployment data for the euro zone. For the US we have later in the week Average hourly earnings and non-farm payrolls and unemployment data. I feel the markets will maintain their range trading for the week ahead with sterling struggling to forge a move higher and market uncertainty keeping the USD from pushing over 1.66 against the pound and 1.41 on the euro.

In other news Bernard Madoff will learn his fate today following his shocking “ponzi” scheme which amounted to the worlds biggest financial fraud (that we know of) of $65 bn. He is arguing for a 12 year sentence, however his victims are pushing for 100 years…

Late afternoon and overnight the USD weakened across the markets as US GDP data came in better than expected. The US economy shrank at an annualised rate of 5.5% in the first quarter of 2009; this was better than the expected contraction of a 5.7% decline. The data raises hopes that the economy has reached a bottom and that Q2 data will show further improvement in GDP. The USD was initially performing strongly in trading yesterday as news that initial jobless claims had risen unexpectedly by 15,000 last week- this led to sentiment to lean towards caution especially given the Feds lack of clarity on future moves in their policy meeting. During the afternoon the USD experienced a sustained sell off against the majors with GBP/USD pushing up from technical support at 1.6250 to a high of 1.6499 in early trading, EUR/USD has also again pushed through the 1.40 level to sit at 1.4045 currently. US equities jumped higher with the S&P 500 up 2.1%, this carried through to Asia with the Nikkei climbing 2.2%- the gain in equities mirroring the improved sentiment following the GDP data. Another reason for USD weakness can be attributed to the vies that interest rates in the US will remain low for a considerable time- there was an expectation for a rate hike in early 2010 but the recent comments from the Fed suggest not. Looking at interest rates the early view on major economies is that a hike will be seen first by the Reserve Bank of Australia and then by the Bank of England- yield remains a key driver for currencies and the AUD and the pound could gain if this view permeates to the markets.

The economy in New Zealand continues to disappoint with GDP data coming in at -2.7% against expectations of -2.3%. This is now the fifth consecutive quarter of contraction for the economy and demonstrates the theme of an export driven economy experiencing more pain in the global slowdown. The same story can be said of Germany; in fact the German finance minister Peer Steinbruck told the BBC that Germany must reduce its dependence on foreign trade. The problem is twofold for Germany and New Zealand in that the fall in demand has been coupled with a significant strengthening of the currency which further dampens the demand.

We expect another volatile day in the markets as sterling targets the technical high of 1.66 on the USD and the EUR aims to breach 1.41. Same theme elsewhere in the fact that the AUD, ZAR and NZD have firmed up on the increased appetite. Keep an eye on the Swiss Franc as further intervention could occur if the CHF starts to strengthen against the USD or the EUR.

• Fed statement moderately upbeat

• SNB intervene in the markets

• ECB funding pumps €442 billion into the banking system

• OECD see the light at the end of the tunnel for the global economy

Lots to talk about on yesterday’s trading day. Early in the trading day the OECD (organization for Economic Cooperation and Development) provided an upbeat assessment for the economy. The think tank pointed to a recovery albeit fragile in the OECD area for 2010; for Britain it was not wholly optimistic- forecasting that the economy will contract by 4.3% in 2009 and stagnate in 2010- this goes against the grain of government forecasts of growth in 2010. It forecast that UK public debt will rise to 14% of GDP and this would prevent further stimulus action if required. GDP forecasts for other major economies show contractions of 2.8% in the US, 6.8% in Japan and 4.8% in the eurozone.

Sterling is a little weaker this morning against the USD and the Euro…dissidence between Mervyn King and the government on fiscal policy is not helping sterling’s cause. Mr King was stated that the “scale of the deficit is truly extraordinary” and he criticized the lack of a long term plan of fiscal policy which has essentially undermined the governments actions to date. The buzz words now are long term and sustainable as the bottom is perceived in major economies; attention will turn to sustainable recovery and planned action for public debt against the previous reactive measures introduced in the face of the sharp downturn. Sterling should improve with improving economic conditions and economic confidence but steps must be taken now to reduce the UK deficit or the UK economy could suffer a relapse.

Spencer Dale recently noted that the weak pound was helping to economic conditions in the UK, the market took the view that he was talking down the pound following recent gains. The SNB (Swiss National Bank) went one step further- the Bank for International Settlements (BIS) - which traders said were acting on behalf of the SNB sold the franc against the euro and the dollar. The SNB declined to comment on the intervention which led to the franc weakening sharply across the markets- this also firmed up the euro and the USD.

Yesterday saw unprecedented liquidity funding from the ECB to lend at 1% for 1-year refinancing- this attracted 1120 banks in return for approximately $500 billion. The key question for the euro is how much of this funding will be converted to other currencies and when- this could weaken the euro over the next few sessions.

Finally we saw the recent fed meeting last night; no huge surprises here. Their assessment was moderately upbeat confirming that the pace of contraction was slowing. The FOMC underlined however that rates will be kept low for some time; the dollar gained in the run up and following the release making all the ground lost earlier in the day against sterling- this highlights the uncertainty in the markets especially surrounding key data snaps.

Yesterday started quietly enough as the markets consolidated the previous days volatility following the downgrading of global growth by the World Bank. That was until the Euro rocketed up against the USD and sterling…surprising really considering the recent scent of unrest with European banks and ongoing questions on the debt concerns in Germany. EUR/USD picked up from 1.38 through the 1.40 level and sterling dropped to 1.1630 against the euro- so why the euro strength? The dollar should have been well positioned following the affirmation of its AAA rating and the recent swing to risk aversion…The euros gains could be attributed to comments from Weber that the ECB do not plan to expand their QE programme, or there could have been a shift to the euro ahead of the ECB’s 1st auction on their QE programme for 1-year funding at 1%. However the reason attributed in trading circles is simply down to a large order being filled and huge demand arising from a US investment bank and then overnight in Asia.

Looking at the markets this morning sterling has made good gains against the USD and recovered some ground on the euro- the lack of further equity losses being broadly sterling positive. Tonight we have the monthly meeting on interest rates in the US, the FOMC are not expected to move interest rates but they will comment on their QE measures introduced. The USD is on the backfoot as the market does not feel that the Fed can allay concerns over the QE programme. In addition the Fed will probably re-assert its position on keeping interest rates low for some time to come- again this is USD negative.

Data today already released from the OECD (Organization For Economic Co-operation and Development) says the economic outlook has improved for the first time in 2 years- good news but the report also noted that soaring unemployment and ballooning deficits could knock the recovery off its track.

Looks like its going to be another volatile day today with a weaker USD driving movements. Commodity currencies remain under pressure following Tuesdays sell-off with AUD, NZD, CAD and ZAR looking fragile. I would expect to see broad USD weakness today against the major currencies ahead of the FOMC meeting.

World Bank downgrade snaps the recent risk driven rallies.

Yesterday the World Bank predicted that the global economy will contract 2.9% this year compared to their previous forecast of a 1.7% decline. This caused a seismic shift in the markets as the wave of risk driven rallies crashed and petered out as concerns that recent “green shoots” will not be sustainable. The effects in the markets were significant; equities were driven lower- the S&P down 3%, Nikkei down 2.8% and the Dow falling over 2%. Oil and Commodities tumbled as investors jumped into safer harbours; Oil fell 4%, Copper over 5% and Gold hit its lowest level since mid-May. In the currencies the moves were very apparent…we saw the AUD unwind significantly against the USD and the CAD also offloaded recent gains retreating to over 1.15 against the USD. So the big losers were the commodity driven currencies and the main gainers being the “safe haven” currencies namely the USD and Japanese Yen. Read the rest of this entry »