The currency blog

A good day for the pound yesterday UK PMI services came in better than expected showing the strongest reading since February 2008 and marking the fourth straight month of expansion. This was good news for sterling which traded higher against the USD and the EUR- against the EUR the pound hit 1.145 and is now eyeing a recovery back over 1.15.

The euro was not helped with a more negatively weighted tone from the European Central Bank, although the ECB did upgrade their forecast for growth there was an undertone of caution. The ECB did not increase the spread on the one year tender and this led to selling of euros- in this case actions spoke louder than words and the improved growth forecast was not backed up with an increase in the one year spread. The central bank also warned that “prudence and caution are the essence” to cement the disappointment for the markets.
Read the rest of this entry »

Yesterday was a strange day in the markets as gold perplexed the markets soaring $22. The reason could be attributed to a move out of equities or a hedge from equities as a safe haven- this backs up the nervous sentiment for September. Within the currency markets this did not lead to any significant breaks out of the current trading ranges, however we did see weakness in the USD against the pound and the euro. Equities also stuttered yesterday with the DOW finishing down on the day; however the Shanghai index rallied- very strange markets at the moment!

The Federal Reserve as expected kept interest rates on hold and did not offer any surprises on future action maintaining that rates will remain low for some time and a cautious approach was still prevalent even in the light of improved economic conditions. Today we have the ECB rate decision and it is anticipated that a similar tone will be affirmed, Trichet will rightly want to cement a tone of caution even after the positive GDP postings by France and Germany. The market will look to see whether the ECB increase their growth forecasts- if so this will be euro positive; another aspect will be whether the ECB increase the spread on the one year tender- if yes this will denote a hawkish stance and be euro positive and if not the opposite.

Read the rest of this entry »

Despite good economic data yesterday from the US in the form of US pending home sales and Manufacturing ISM the market flipped into negative mode. There is no one reason for this shift but a culmination of reasons and this led to equities tumbling and Oil and commodities falling; the main losers were the banks as fears rose on renewed balance sheet concerns. September was previously touted as the month for stocks to fall and the first day of the month definitely backed up this prediction. Concerns over the sustainability of China’s growth were a big factor and also discouraging data from automakers. In the markets we witnessed further strength in the USD and the JPY as the risk aversion trend came into play. GBP/USD moved from a morning high of 1.6350 to a low of 1.6111 and EUR/USD retreated from 1.43 to 1.42; GBP/JPY fell back under the 150 level as the positive YEN feel on the new leadership continued coupled with strength on the back of risk aversion. USD/JPY moved into 92.00 levels and this brings the 90.00 level into focus again.

Yesterday in the UK economy we had mixed economic data with a rise in mortgage approvals and an improvement in M4 money supply- this is a positive as it lends some weight to the argument that QE may be starting to kick in- however still early days. The bad news was that net lending fell in July by the sharpest pace since records began in 1993 and UK PMI contracted sharply which led to a sharp sell off in sterling. UK construction PMI data just out came in better than previous at 47.7 showing a slowing pace in the contraction in the construction industry- the pound is up slightly on the news.
Read the rest of this entry »

With the London markets closed yesterday sterling emerged into trading this morning relatively unscathed. It was probably slightly supported on the better than expected GDP data on Friday coming in at -0.7% against the forecast of -0.8%. This morning first thing we were actually advancing against the USD and the EURO; however UK data at 9:30 soon put pay to that. UK manufacturing PMI data fell when the market was looking for a rise- this quickly led to sterling shedding its gains against the USD and EUR and moving down towards 1.62 and 1.13 respectively. In other UK data mortgage approvals were up slightly but not significant to benefit the pound.

In other data released the Eurozone came out smelling of roses with European manufacturing PMI up, German unemployment better than expected and Italian business confidence also improving. The Eurozone unemployment rate came in at 9.5% which is weak but was expected. This week the market will focus on the ECB meeting to shed more light on the ECB’s plans going forward.

Read the rest of this entry »

This morning we have seen Q2 GDP come in better than expected at -0.7% against the expected -0.8%. Although still a poor reading the fact that it has come in better than expected will be a welcome relief for sterling following a week to forget. In the markets we have not seen a huge reaction to the news so far although we are up against the USD and the EUR from yesterdays lows. Crucially GBP/EUR has popped its head back over the 1.1363 level which is important and sterling has gained against the JPY and the USD- with a bank holiday in store for Monday we could see some profit taking in favour of the pound later today after a heavy week of selling sterling.

Read the rest of this entry »

Are we seeing another period of sterling weakness? The signs are not looking too good for the beleaguered pound and the defining moment will be tomorrows UK GDP data which is expected to emphasize a further contraction in growth. Negatives are also growing due to doubts that QE measures introduced have not had the required effect in the UK economy and with the door open for further expansion of the QE programme this does not bode well. With the prospect of rising unemployment, contracting growth and further stimulus being probed in an economy with hugely spiraling public debt then you can see why the market is bearish on the pound. However the market changes sentiment like a weather cock and a better than expected GDP number could kick start the pound back into life tomorrow.

Read the rest of this entry »