Analysis

5th July 2010

 

 

Sterling / Euro

 

The pound continued its path lower against the euro on Friday, closing the week back below €1.21 as investors unwound positions betting the single currency would fall.

• Eurozone funding operations last week broadly suggested that the liquidity problems facing banks in the region may not be as bad as previously thought.
• Demand for ECB loans was still high and clearly the banking issues remain deep set but it appears the market may have exaggerated the situation, which enabled the euro to stage a comeback in the latter half of the week.
• In trading this morning the pair remain little changed with the price holding around €1.21.
• Focus this week will be on Thursday's interest rate decision from both the European Central Bank and the Bank of England.
• As has been the trend recently the BoE is unlikely to offer too many surprises, but the ECB press conference should provide some insight into the level of unease in the eurozone
• We do not expect much pickup in demand for the euro ahead of the announcement, which could allow sterling to recap some of its recent losses.
• In data today we await figures from the UK services industry, though with broader themes continuing to dictate direction, the market impact may only be slight.

 

 

Sterling / US Dollar

 

Sterling touched a brief two-month high against the dollar on Friday following weak US employment data that prompted investors to dump the currency.

• The pound climbed to $1.5230, its strongest level since early May after disappointing jobless figures from the US raised concerns that the US economic recovery is faltering.
• The June non-farm payrolls continued a bad run of data now lasting some two weeks, which has raised expectations that the Fed may need to extend stimulus measures to keep the recovery on track.
• Sterling ended the week nearly 1% higher, marking its fourth straight week of gains which we expect to be extended while the dollar remains under pressure.
• In trading this morning the pound has dropped back below $1.52 but is holding steady with the markets expected to be quiet as the US are away for the Independence Day bank holiday.
• It is a quiet week in terms of data from the US but the fear of a long period of low employment growth and very low rates in the US is set to continue weighing on the greenback in the short term.

 

Euro / US Dollar

 

The dollar lost ground on Friday, extending heavy losses from the previous session as US employment data came in below expectations.

• Figures showed the US non-farm payrolls fell by 125,000 in June, worse than expectations for a drop of 110,000.
• The data raised fears over a double-dip recession in the world's largest economy and strengthened the prospect that the Federal Reserve might have to ease monetary conditions further.
• The array of weak numbers from the US last week helped to take some of the focus away from the eurozone prompting a short squeeze in the single currency, though the price has eased off its highs this morning.
• The euro is currently holding above $1.25. However, with attention turning to a slowdown in the US, the trend for the single currency could be shifting and we could see further strength ahead, particularly as the euro appears to have severed its tie with the falling equity markets.

 

 

Rest of the World

 

Australian Dollar

 

Friday saw a fifth straight day of gains for the pound against the aussie, bringing the price back above 1.80 as investors continued to shy away from risk.

• Although the focus is shifting away from the troubles in the eurozone, risk aversion remained at a high following further disappointing numbers from the US.
• The aussie was given some relief though as Australian Prime Minister Julia Gillard scaled back a proposed tax on mining companies to win their support.
• In trading this morning the pound has eased from its highs but remains hovering around 1.80.
• Offshore takeover bids for two Australian companies has helped the aussie, as have remarks from ratings agency Moody's that mining giants BHP Billiton and Rio Tinto should not suffer "undue negative" effects from the new mining tax.
• This week attention will turn to the Reserve Bank of Australia's meeting on Tuesday. While the outcome is in little doubt with no change expected from 4.50%, the RBA statement will almost certainly be a market mover.

 

 

New Zealand Dollar

 

Sterling enjoyed another positive day against the kiwi on Friday, continuing its strong run and climbing back above 2.20.

• In line with broader market movements, there was little demand for the higher-risk New Zealand dollar on Friday.
• A sense that perhaps the anxiety about the global economy may have been overblown has given the kiwi the impetus to move higher this morning, but amid the general risk attitude at present it is hard to see the NZ dollar garnering much support.
• A closely watched business sentiment survey from the New Zealand Institute of Economic Research due on Tuesday is the only major data this week. However, the kiwi is likely to remain a spectator to broader events.

 

 

 

Caxton FX is Authorised and Regulated by The Financial Services Authority to provide investment advice.

This email is prepared by Caxton FX Ltd for information only. It may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security. The information contained herein is believed to be reliable but Caxton FX Ltd does not represent that it is accurate or complete. No liability is accepted whatsoever for any loss from its use. Quotations and assumptions are indicative only. Caxton FX Ltd or its affiliates may have a material interest in the subject or a related matter herein. Caxton FX Ltd is authorised and regulated by the Financial Services Authority for investment advice only. Foreign exchange transactions with Caxton FX fall outside the remit of the FSA and are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade. Caxton FX Ltd accepts no responsibility for any loss suffered or damages sustained through any act or omission taken as taken as a result of any of the information herein.