Blog

The beleaguered pound was in demand yesterday reaching a six week high verses the Euro and holding its own against the stronger Dollar due to a combination of short covering and negative Euro sentiment on the back of the recent slide in global equity markets. Stronger than expected UK mortgage approval data also added to reasons to buy sterling with mortgage approvals numbering 56,215 in September, up from 52,970 in August and better than the increase of 54,000 forecast. There was however a cloud on the horizon in the shape of the M4 money supply data although the headline M4 grew by 0.8% in September taking the annual rate of growth to 11.6% the BOE’s preferred measure which excludes some non-bank financial intermediaries fell 0.9% on the month and declined at an annualized rate of 1.7%. So while there continues to be encouraging signs of recovery coming from the housing market the money supply figures will surely support the case for more QE next week.
Read the rest of this entry »

Sterling is rallying this morning in the markets against most of the major currencies except the Japanese Yen. This morning mortgage approvals in the UK hit its highest level for 18 months giving sterling a good start, however net lending rose by less than expected and yet sterling still rallies- the question is why?

With the Bank of England decision next week and recent reports and sentiment pointing towards an expansion of QE then you would think that sterling would be on the back foot. Against the euro the pound has pushed through 1.11 and yesterday held firm against USD strength across the market to keep cable above 1.64. It could be that the opinion of Goldman Sachs that sterling is undervalued is psychologically underpinning the pound. It also may be the case that the worst is now behind the UK economy and GDP in quarter 4 will finally show an exit from the recession and a start to prolonged albeit slow growth.
Read the rest of this entry »

Yesterday and overnight we had little movement in the markets comparative to what we have been used to. The euro remains on the back foot and has slipped further against the USD, JPY and the pound. Part of the euros weakness could be linked to the news that bank lending in the eurozone is continuing to contract and this could maintain low interest rates for some time as deflation fears kick in.

European stocks are also coming under selling pressure and overall this has heightened a move into risk aversion with the FTSE, Dow and Oil dipping and leading to the USD gaining against the euro and the pound. Today we do not have any major risk events in relation to economic data with tomorrow grabbing the attention in this regard with UK net lending and money supply; US GDP and jobless claims and German unemployment and eurozone consumer and economic confidence. Later today we have Durable Goods and New Home Sales from the US, yesterday the Conference Board reported that US consumer confidence fell to 47.7 in October from 53.1 in September.
Read the rest of this entry »

The big news in the markets yesterday was the rally of the USD in particular against the euro but in addition against the Yen and higher yielding currencies. Is this the start of a sustained rally after prolonged USD weakness? Probably not yet but it is a relief rally and again highlights the fragility and volatility in the global markets. At US open yesterday equities rallied and the USD weakened further-it looked business as usual. However the markets suddenly turned and equities and commodities dropped sharply and strength came back into the USD led by the drop in stocks. It is a little uncertain what caused the sell off- there were reports of heavy selling of EUR/USD by a Swiss private bank and the fact that EUR/USD looked tired at the 1.50 level probably led to jitters that a top had been reached.
Read the rest of this entry »

In the wake of Friday’s horrendous GDP data, there is now growing speculation that the Bank of England will extend their QE programme at the next meeting on November 5. This was reiterated by former MPC member Mr Blanchflower who on Bloomberg TV noted that the Bank of England will have to do another £50 billion and they could extend by as much as £250 billion in all from the current £175 billion. Naturally this is not good news for the pound and it is understandably under pressure this morning in the markets- the next major level on GBP/USD is 1.6240 and on GBP/EUR 1.0750.

Today is the last installment of the oil company purchase of GBP from USD- the company has needed to turn USD into sterling in order to pay shareholder dividends and this could offer GBP/USD some support for today.

Read the rest of this entry »

It was the big one that the market had been waiting for- UK GDP. This was touted to show that the UK economy had exited the recession but it was woefully disappointing. UK Q-3 GDP has come in demonstrably weaker than expected, -0.4% quarter on quarter, -5.2% year on year compared to median forecasts of +0.2%, -4.6% y/y.  Following on from yesterdays weaker retail sales data the pound has once again fallen of a cliff this morning- so far we have lost over 1.5% against the USD and the EUR. Unfortunately the good cheer surrounding sterling earlier in the week following a less dovish stance from the Bank of England has now been smashed and talk of parity against the euro is likely to be the market chatter once again.

Over to the Eurozone and we have seen some decent data in the form of PMI (Purchasing Manager Index) for services and manufacturing. The data came in better than expected and is an important indicator of business conditions in the Eurozone. Meanwhile the German IFO came in pretty much as expected.

Looking at the currencies this morning we can see that EUR/USD is still holding firm above 1.50 following the positive economic data. Sterling is the big loser as you would expect and is still falling against the major currencies- it has breached 1.10 against the euro and is testing 1.64 against the USD; the next support is 1.6340.