The currency blog

The markets have demonstrated conflicting trading signals on the USD- following last weeks rally back below 1.60 against the pound and to 1.38 against the euro we have now seen a reversal. The dollar was buoyed at the close of last week with improved non-farm payroll data increasing confidence in the greenback and political concerns further helping the USD gains against sterling. Outlook in the US was again helped yesterday with regards to the repaying of TARP by the 10 large American institutions but the dollar weakened yesterday and followed its regular trend of being sold on risk appetite. The key data in the US today will focus on the trade balance and the Fed Beige book. The trade balance is expected to widen in the US due to higher petroleum prices and the beige book is expected to confirm that the pace of economic contraction has slowed and the housing market is continuing to stabilize…we will see how the data affects the dollar this afternoon. I feel the dollar should come under future pressure due to recent fiscal policy and growing debt…this will discourage buying USD as a safe haven and it will be increasingly sold as recovery in the global markets improves. Cable is now looking to target a move to 1.65 and EUR/USD has moved back above 1.40 to 1.41 currently- with a rumour of Goldman’s going long on EUR/USD and targeting 1.45.

Sterling was helped with better output data than expected this morning with Industrial production coming in at +0.3% against a forecast of -0.1%, however the trade deficit widened to -£7.003bn against a forecast of -£6.5bn- this has not dented sterling too much and it has held firm against the majors. One key move is GBP/YEN is now trading back over 160.00 a good indicator of overall confidence permeating the markets.

Australia had a good number in the form of a key measure of consumer confidence posting its biggest monthly rise in 22 years- this has helped the AUD strengthen against the pound and the dollar and yen. The Aussie remains a firm favourite in yield and risk based trades from lower yielding/safe haven currencies. Other key data today is the interest rate decision from New Zealand- currently rates sit at 2.50% and a cut could be on the cards…

Discuss on this on the Currency Exchange Forum