Foreign exchange and currency rates blog

Donating in July and August 2010. How did we do?

Sara — Thu, 02 Sep 2010 15:26:51 +0000

Well summer has come and gone, and despite the dip in attendance in the office due to holidays we have managed to raise the princely sum of £381.80 during July and August. This is a great achievement as we haven’t had any additional activities, this is just good honest donating on Dress Down Friday!

So how did each of the charities do?

Marie Curie Cancer Care - £184.60
Wilderness Africa Trust - £106.00
Right To Play - £91.20

Marie Curie Cancer Care then was the favourite charity this time in the office and I do think that was partly due to the fantastic talk that we were treated to by Jane Shufflebotham who took the time to come to the office and tell us more about the good work that Marie Curie Cancer Care do! A big thank you to Jane and to Marie Curie, and watch this space as I hope to be arranging some more fundraising activities over the coming months to help their cause!

So, who are we supporting over the next two months?

Bobby Moore Fund
Amnesty International
Centre 56

There is more information about each of these charities on our co-operative wall in the office, which has now been updated so please do take the time to stop and have a look.

As always, don’t be shy in coming forward with any fundraising activity ideas and happy Dress Down Friday!

A mixed menu

Keith Spitalnick — Thu, 02 Sep 2010 11:27:42 +0000

Yesterday was an eventful day for the Euro as it made significant gains versus both Sterling and the Dollar. The British pound hit a 3 week low against the Euro as the UK Manufacturing PMI came in well below expectations at 54.3 in August following a reading of 56.9 in July. Nationwide house price data out overnight was also disappointing so we may see Sterling remaining on the back foot today. Robust economic readings in both China and Australia overnight, spurred on demand for higher-yielding assets prompting the Dollar and Japanese Yen to fall against most of their major counterparts. Australian GDP surprised strongly on the upside at 1.2% q/q, against the anticipated 0.9% q/q. This coupled with better than expected manufacturing numbers in China have led the market to the risk on trade.

Next on the menu for markets to digest is the US payrolls data tomorrow. Despite the ADP jobs report revealed a surprise 10k decline the employment component of the ISM manufacturing survey strengthened to 60.4, leading to an improvement in August manufacturing payrolls. Ahead of the payrolls release the US data slate today largely consists of second tier releases including July pending home sales, August chain store sales, weekly jobless claims, and factory orders. It is worth paying particular interest to jobless claims given that the four week moving average has been edging higher, suggesting renewed job market deterioration. The consensus is for a 475k increase in claims, which will still leave the 4-week average at an elevated level.

Given that much attention is being paid at present at whether the Fed will reinstate quantitative easing, comments by Fed officials overnight were closely watched for further clues. In the event, Fed Governor Kohn emphasized that the Fed’s reinvestment of the proceeds from mortgage-backed securities will not automatically lead to further QE, suggesting some indecision on his part. For now, Dallas Fed President Fisher noted his unwillingness to expand the Fed’s balance sheet until fiscal and regulatory fears are cleared up. Both sets of remarks draw attention to the complexity in gaining an agreement within the FOMC for a further boost in QE, suggesting that the difficulty for further balance sheet growth will be set quite high. Furthermore, such comments put the responsibility on Congress to move quickly in clearing up fiscal policy uncertainties

Finally, we have busy day in Europe with Gross Domestic Product, Interest rate rates both expected to remain unchanged followed by a lunch time chat with Mr Trichet of the ECB. This will be interesting press conference to see what is said in relation to the possibility of extending the full allotment of refinancing operations. While Q2 growth was strong, Trichet cautioned on the second half of the year at his previous press conference so again his comments on growth expectations will be closely monitored.

Bickering at the FOMC

Keith Spitalnick — Wed, 01 Sep 2010 10:18:56 +0000

The highlight overnight was the release of the minutes from the August 10th Federal Reserve Open Market Committee meeting. Some Federal Reserve officials were concerned that a decision to keep securities holdings unchanged would inadvertently signal an intention to resume large-scale asset purchases. Also, a few policy makers said the economic effects of the decision “would be quite small,” but at the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth”. The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. In a speech last week, Bernanke said “Policy makers haven’t agreed on specific criteria or triggers for further action”.

In other important US economic releases, we had the Conference Board’s confidence index yesterday afternoon which showed that confidence among U.S. consumers rose more than forecast in August; a sign the biggest part of the economy may avoid a slowdown that would derail the recovery. The Conference Board’s confidence index increased to 53.5 from a five-month low of 51 in July, figures from the New York- based private research group showed. More confidence may help ease concern that consumer spending, which accounts for about 70 percent of the economy, will falter.

As we approach the ECB meeting this Thursday, yesterdays Eurozone annual inflation reading fell from 1.7 in July to 1.6 in August, coming in well under the ECB’s target of 2%. Inflation looks set to remain muted for the rest of 2010 and into 2011 as European governments implement austerity packages to shore up their sovereign balance sheets. Yesterday we also saw German unemployment continuing to fall, for the 14 month in a row, slightly better than expected sparking a rally in the Eur/Usd which provided strong support going into the release of the Fed’s minutes. Investors had been keenly anticipating the release of these minutes but were somewhat disappointed as it lacked any new information triggering another move higher for Eur/Usd.

The UK market was largely subdued as the long bank holiday weekend took its toll. Sterling, although firm at opening, declined during the day on what appears to have been the regular end of month demand for Euro/Sterling. Today, we are scheduled to get PMI manufacturing data from Germany, the Eurozone, the UK and the ISM manufacturing numbers from the US giving us the first test of the relative performances West v East.

US data the focus for the week

Keith Spitalnick — Tue, 31 Aug 2010 11:14:28 +0000

Last Friday Fed Chairman Ben Bernanke suggested that the bank will do all it can to maintain the US economic recovery and gave an overview of the steps the Fed can take if growth continues to slow. Mr Bernanke said the Fed can provide additional monetary accommodation through unconventional measures if needed, especially if the economic situation continues to deteriorate. The mention of another round of QE had already been priced into the Dollar and so the speech had little impact, but the implications for the Fed stance moving forward will keep the Dollar on the back foot, especially with GDP growth also downgraded to 1.6% on Friday afternoon. This week’s data releases are focused on the US, with the closely watched non-farm payrolls figure out on Friday and the ISM manufacturing index published on Wednesday. The unemployment data is forecast to show a loss of around 100K jobs, but taking into account the recent news flow, the number may be significant lower.

The Japanese government has closely watched the appreciation of the Yen over recent weeks, with some in the market speculating that there may be a line in the sand around 84 versus the USD as the level for direct intervention. Ministers have been actively talking down the currency, but with little effect with the Yen hitting a 15 year high versus the Dollar last week. The announcement on Monday by the BOJ left the markets slightly underwhelemed, when instead of intervention talk, the BOJ announced easing of monetary policy, prompting a further round of Yen strength. This was followed by a large sell off on the Nikkei, down 3.55% in the Asian session and leading European bourses lower this morning. The evaporation of risk sentiment across the markets is driving the flight into less risky assets, witnessed by the dramatic drop in bond yields and the corresponding flight to the traditional safe haven currencies of the Swiss Franc, USD and Japanese Yen.

European consumer confidence reached its highest point in two years as export driven growth helped the Eurozone economy to grow in the second quarter at the fastest pace in four years. This morning, both Eurozone inflation and unemployment figures were exactly as forecast, 1.6% YoY and 9.6% respectively. Thursday sees the monthly ECB meeting. Rates are expected to be kept on hold, but traders will be looking for indications of how the ECB plans to withdraw the extraordinary monetary stimulus in light of the positive data recently.

Weekly sterling update

James Lesinski — Fri, 27 Aug 2010 16:23:15 +0000

Revising UK GDP figures up a fraction has made little impression on the overall range of the pound although it is encouraging to see the sterling euro rate holding at 1.215 at the close of trading 27/08/10. Perhaps worryingly, the improvement in the pound may now have an adverse affect on UK exports which were a factor in the improved figures. Importers have a little respite with this more attractive level. Germany’s industrial figures still give the UK cause for concern in the short term, and unemployment in the UK is playing on the government’s mind, but retail sales figures show that the consumer, although shrewder, is not daunted by the austerity measures that have animated political discussion of late.

July and August are traditionally slow months in the retail money markets; however this year has shown a 10% increase in interest in overseas buys. Although some would argue that the UK banking sector does not deserve a holiday, it would seem that financial earnings figures, and a the relative evaporation of risk aversion, will find the pound at a more or less stable level come Tuesday. Next week does see weighty information released from the United Kingdom, but as we have seen over the past four weeks, sterling buyers are still keeping the UK afloat and this may transalte into an attempt to breach the higher 1.22 resistance level if the datas prooves positive.

Liquidity moves to the skies

Keith Spitalnick — Fri, 27 Aug 2010 15:30:55 +0000

Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week. The Dow is down 2.23% on the week and just over 6% on the month, slipping below the critical 10,000 level (closing yesterday at 9,985). S&P and Nasdaq have followed suit heading into the end of the month 6.7% and 6% down on the month. In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month. In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.

Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000. However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had. Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.

Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October. German CPI data is also due out this morning and if it follows the positive trend we may seen the reading come out ahead of expectations however seasonal trends suggest August CPI readings are usually low.

Euro Zone money supply growth held steady in July as loans to the private sector steepened. The Conference Board’s leading economic index for the Eurozone (which is used to identify turning points in the business cycle of the Euro Zone) rose by 1% to 112.5 in July. The European Central bank reported loans to the private sector grew at a annual rate of 0.9% up from 0.5% rise in June.

Today should be an interesting day with GDP readings from the UK and US coupled with Bernanke speaking this afternoon. UK GDP Q2 2nd release is expected to be unchanged at 1.1% and US GDP Q2 2nd release is expected to be revised down slightly to 1.3%. This afternoon all eyes will turn to Bernanke who is speaking at a conference at 3pm (GMT) at the Economic Symposium in Jackson Hole, Kansas. It is anticipated that Bernanke will revise down the US 2nd quarter economic growth figure at this annual conference. The recent flow of disappointing data from the States has fuelled fears of a double dip recession. Gold has edged higher this week to current levels of 1236 per ounce (Gold has surged this month as investors seek safe havens and is up 4.80% on the month).

A mixed bag for the currency markets

Keith Spitalnick — Fri, 27 Aug 2010 07:30:33 +0000

An unexpected boost in German IFO business sentiment gave the Euro a lift yesterday. The data showed sentiment at a three year high, hitting 106.7 versus a forecast level of 105.5 and reaffirming the positive data flow from Germany over the past month. However, Irish woes continued with Standard & Poor’s, the ratings agency, downgrading their debt to AA- with a negative outlook. The huge cost of supporting the Irish banking system will push debt towards 113 per cent of GDP according the S&P estimates, well above the Eurozone average putting increasing demands on the Celtic tiger’s public finances and creating serious headwinds for economic growth. Irish ministers were understandably furious, but the fear is the austerity measures designed to reduce the government budget deficit may make the job harder because of increasing unemployment and depressing tax revenues. This fear, applicable to the other indebted Eurozone nations, is once again hanging over the Euro and is allowing Sterling and the Dollar to regain lost ground against it.

US figures yesterday also disappointed, new home sales fell 12.4%, durable goods orders dropped 0.3% and the house price index slipped 0.35 month on month, the economic picture continues to deteriorate and the corresponding drop in bond yields over the past month as investors park their money in fixed income instruments suggests the market now expects the US to slip back towards recession and another bout of quantitative easing. The USD has fallen back against the Pound with cable now back over the 1.55 level.

With data releases still light this week, Sterling traders will look towards today’s CBI reported sales figures as a gauge of the economic recovery in the UK, but the important data is tomorrow which sees UK GDP reported along with US GDP and Fed Chairman Ben Bernanke speaking in the afternoon.

Poor housing data rocks markets

Keith Spitalnick — Wed, 25 Aug 2010 15:51:19 +0000

Sales of previously owned US homes dropped more than expected in July to their lowest pace in 15 years implying further loss of momentum in the States economic recovery. The record drop of 27.2% from June equates to an annual rate of 3.83 million units which is the lowest level since May 1995 and June’s sales pace was revised down to a 5.26million-unit pace. Markets had been anticipating a tumble of around 12% and so were shocked with the magnitude of this figure.

The USD dropped significantly against the JPY following the news to a new 15-year low of around 83.60. This prompted more verbal intervention from Tokyo but made little impact however as investors continue to sell USDJPY and are now focusing on the all time lows of 79.75 from 1995.

Investors ploughed money into government bonds, driving down the implied cost of borrowing to record lows in Britain and Germany. The UK 10 year gilt yield fell to 2.88% which is even lower than that of March 2009 when the BoE announced that it would buy billions of gilts under its quantitative easing scheme. US 10 treasury yields broke below 2.5%. Oil followed suit and fell below $72 a barrel yesterday, down for a fifth day after weak US economic data spread gloom about the ability of the US, oils top consumer, to work through record stocks.

These ripples of doubt ran across the globe and caused equities to close down; Britain’s top share index closed lower with UK banks, miners and energy stocks bearing the brunt of the sell-off. The FTSE ended down 78.89 points (1.5%) at 5,155.95 which is its lowest close since 20th July and unwound the gains of 0.8% which we had seen on Monday.

Chief executive of fund manager Jupiter, Edward Bonham Carter, was trying to make sense of all of this data yesterday and predicted that equities will be range-bound for the next three to five years, but with significant bouts of volatility in between. This has sparked chat about a new animal metaphor coming into play…forget your bulls and bears we are now talking about hippos! Apparently the hippo is considered the animal half way point between bull and bear… the animal that lies around in the mud doing little for a lot of the time but whose occasional bouts of activity can surprise people. They are also pretty dangerous when they want to be!

MPC member not ruling out double dip

Keith Spitalnick — Tue, 24 Aug 2010 10:28:58 +0000

The newest member of the Bank of England’s rate-setting Monetary Policy Committee hit the headlines this morning. Britain faces “significant” risk of a fresh slump into recession according to Dr Martin Weale, who said it would be “foolish” to rule out the possibility of a double-dip downturn. He also thought the Banks central outlook on growth could be too optimistic in light of the fiscal cuts currently being implemented. The BoE forecast is for growth of about 2.8% in 2011 and 3.2% in 2012. Sterling has dropped over a cent against the dollar following the news and has traded as low as 1.5371.

M&A activity in the US, helped lift sentiment yesterday, unfortunately this did not last for long and both main stock indexes closed marginally down on the day. There is little economic news again today so focus is likely to remain on the existing home sales in the US which is out this afternoon at 15:00. Figures are expected to show that sales of existing US homes fell to an annual rate of 4.67million in July from 5.37 million in June. There is also housing data due out tomorrow which is due to show that sales of new homes rose to 340,000 from 330,000 in June.

In Europe we have seen data from the Federal Statistics Office this morning confirm that German GDP grew 2.2% in the second quarter compared with the previous three months, which is actually up 4.1% on the year. The news provides yet further evidence of the strength of the recovery in Germany whilst other countries in the Euro zone still falter. Yesterday consumer confidence in the Euro zone and the European Union improved slightly in August according to figures from the European Commission. The figures rose to -11.4 from -13.8 for the 16-country currency area and beat expectations of -12.8 although this data release went relatively unnoticed in the markets and did not impact on the euro.

Weekly sterling update

James Lesinski — Mon, 23 Aug 2010 09:55:53 +0000

Forecasters working with some of the larger ratings agencies have surprised the market by suggesting that the pound may come under significant pressure before the end of the year. Whilst the Chancellor had been applauded for taking the plunge and cutting public spending, austerity measures in the UK will undoubtedly affect growth in the UK economy which puts the UK at a disadvantage when compared with the more robust US and European forecasts. Despite this thought the pound has moved higher against the euro over from Friday, with an opening bid of 1.2664 for Monday 23rd.

Britain’s retail sales figures released on Thursday do suggest that inflation rises have not deterred consumers, plus weakness in the pound has attracted improved tourist activities, however Britain is not nearly as flexible as her European competitors when it comes to extending visas to the newly mobile consumers arriving from the far east, and as the summer draws to an end it has been suggested that we will see a decline in like for like figures as UK residents tighten the purse strings.

August is a usually a quieter time, but one hopes that rates above 1.20 will tempt buyers to considering exchanging at this improved level. The temptation is always to speculate further, but hardly any of the fiscal or monetary policy measures that have been proposed to deal with credit or inflationary issues will have positive effects for the Brit buyers in the short term. Autumn will continue to prove and uncertain time for the UK and the pound.