Analysis

6th July 2010

 

 

Sterling / Euro

 

In subdued trading yesterday, the pound edged lower against the euro following a weaker-than-expected reading of activity in the UK services industry.

• The services index fell to 54.4 in June from 55.4 in May due to subdued new business and a record monthly drop in confidence, highlighting the fragility of the country's economic recovery.
• The data falls in line with disappointing June figures from the other industries, confirming that a slight deceleration of growth in the second half of the year is likely. However, the indices do remain firmly in expansive territory and as yet the case remains that the economy will not "double-dip."
• Aside from that data the news front was fairly quiet yesterday and the pair remained in a comparatively tight trading range.
• The trend has remained much the same this morning with the markets awaiting the two central bank meetings on Thursday.
• The price is continuing to hold near 1.21 and we do not expect to see any excessive movement today with the data calendar again quiet.

 

 

Sterling / US Dollar

 

The pound came off its highs against the US dollar yesterday, dropping back half a cent as investors looked to book profits from sterling's rally.

• With the US on holiday yesterday trading volumes were thin, but the pound got a slight knock following some disappointing data from the UK services sector.
• The data, although still comparatively strong, raises some concern about the strength of the economic recovery and prompted investors to cash in on profits.
• Sterling has had a strong run against the greenback since June, heading up steadily in an almost straight line, so it was not too much of a surprise to see the price correct itself.
• In trading this morning, sterling is regaining the initiative and has resumed its upward trend with the price now back up at $1.52.
• A more optimistic tone to the Reserve Bank of Australia's global outlook this morning and a positive opening to the European equity markets has helped push the dollar lower across the board, and with no major announcements due we expect sterling to hold this line through the day.

 

Euro / US Dollar

 

The euro edged down in subdued trade yesterday with concern over eurozone debt receding but the markets still concerned about the strength of the recovery.

• Following a sharp rally at the end of last week, traders were wary of chasing the dollar any lower given that the US markets were closed in observance of Independence Day.
• The euro was also lower on speculation that the ECB is looking to keep the region's interest rate at 1% for a considerable time to help stimulate the economy.
• In trading this morning the euro is again on the rise with a slightly more buoyant mood in the markets.
• There is also now a creeping fear that the strong dollar environment is beginning to break, with the market concerned about an economic slowdown in the US.
• The single currency is reaching back toward 1.26 at present, nearing a fresh 6-week high and whilst the negative announcements from the eurozone remain at bay, the market seems content to take the single currency higher.

 

 

Rest of the World

 

Australian Dollar

 

As with other pairs yesterday sterling's movement against the aussie was relatively subdued with the price closing virtually unchanged.

• With little of substance available to give the market's direction, this pair traded sideways with investors awaiting the statement from the Reserve Bank of Australia.
• Early this morning, as was widely expected, the RBA left the rate of interest unchanged at 4.50%.
• The statement did offer a slightly more upbeat tone that the market had priced in though, which has given the aussie some support today.
• The statement helped to dispel some of the gloom of about the global economic outlook, saying that the economy should continue to expand, albeit it unevenly.
• Following the statement the pound has dropped back over a cent to trade at 1.79 but don't expect sterling's downturn to last long amid a still broadly risk adverse environment.

 

 

New Zealand Dollar

 

This pair remained all but unchanged through trading yesterday, tracking broadly quiet market conditions but the kiwi has turned higher this morning.

• In a quarterly projection, the New Zealand Institute for Economic Research offered a slightly weaker forecast for business confidence amid the fragile global recovery.
• The data, although a good gauge of current economic conditions in NZ, has had little impact on the kiwi which is trading higher today in line with other high-yielding currencies.
• The pound has fallen back half a percent to trade around 2.19, but we expect to see sterling turn higher again in the short term with demand for risk still at a low.

 

 

 

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