Analysis

7th June 2010

 

 

Sterling / Euro

 

The pound was sent higher against the euro on Friday, hitting a fresh 18-month high tracking the euro's slide against the US currency.

• With no new headline stories to lead the financial markets, focus turned to unemployment data from the US. Sterling benefited from the lower-than-expected number as investors increased selling of their euro holdings.
  
• The risk adverse sentiment has been beneficial for the pound against most currencies aside from the "safe-haven" US dollar and Japanese yen.
  
• With the situation in the eurozone continuing to deteriorate, sterling was able to gain over three percent against the euro last week and we now expect the pound to hold above the 1.20 level.
  
• In trading this morning, the pound briefly rallied above 1.21 but has since fallen back down with investors aware of how rapidly sterling has appreciated in the past few sessions.
  
• With little economic news out of the UK or Europe today we expect market movements to continue coming from the broader macro picture, in particular global equities.
  
• The major economic news for this pair this week will be the interest rate decisions on Thursday from both central banks. There is little chance of either Bank changing their rate, but in particular the ECB's accompanying press conference should give an insight into the escalating situation in Europe.
  
  

 

Sterling / US Dollar

 

US job figures dominated the global markets on Friday with lower-than-expected numbers sending the greenback broadly higher.

• Sterling fell sharply against the dollar, losing one and a half cents, as a disappointing rise in US job numbers suggested the US economy is only gradually improving, and keeping investors averse to risk.
  
• Data showed US nonfarm payrolls rose by 431,000 in May. While this jobs growth was the fastest rate since March 2000, the figure was still short of forecasts for a 513,000 increase.
  
• In trading this morning, market sentiment appears little changed, with sterling again heading lower and currently trading just above $1.44.
  
• Analysts expect sterling to be confined to recent trading ranges until the UK government announces an emergency budget later in the month to help reduce the budget deficit.
  
• The market is caught between optimism that firm steps will be taken to turn the deficit round and fears that anything too strong will choke the recovery.

 

Euro / US Dollar

The single currency tumbled a further two cents against the dollar on Friday, slipping back below $1.20 as US jobs figures disappointed.

• Weaker-than-expected US employment numbers on Friday sparked further dollar buying, which saw the $1.20 level broken late on in the European session.
  
• With the euro now trading at its lowest point in four years, investors are increasingly nervous about further slides following the clear break below a chart support point.
  
• A lack of any expression of strong concern at a G20 meeting of finance ministers over the weekend or from eurozone policymakers on Friday encouraged market players to increase euro selling.
  
• In trading this morning, the theme remains largely unchanged from Friday's session, with the euro heading lower and briefly falling beneath $1.19.
  
• A comment from French Prime Minister Francois Fillon stating that he saw only "good news" in parity between the euro and dollar, has encouraged selling today.
  
• Economic data is sparse today, and focus this week will be on the ECB's meeting on Thursday, which should shed some light on how they plan to tackle the debt crisis and the chronic lack of confidence from the market.

 

 

Rest of the World

 

Australian Dollar

 

Sterling resumed its upward trend against the Australian dollar at the end of last week and has struck a five-month high in trading this morning as risk aversion remains.

• The weak US jobs figures had a strong global impact, and losses on the US stock markets were mirrored in Asia with the Nikkei 225 dropping nearly four percent.
  
• This led to a sharp sell-off in higher yielding currencies, a trend which is continuing this morning with sterling currently trading up a full percent and the price above 1.77.
  
• Domestic data today illustrated that the economic outlook in Australia remains upbeat with job advertisements jumping in May and construction activity again on the rise.
  
• Yet the markets are now pricing out any chance of another rate rise in coming months. Reserve Bank of Australia Governor Glenn Stevens speaks on Wednesday and the market will be keen to hear if he is still as confident that Australia can withstand the ongoing woes spreading from the eurozone.

 

 

New Zealand Dollar

 

In line with the broad market movement, the kiwi dollar headed lower on Friday as risk aversion heightening following US data.

• High-yielding, commodity linked currencies have come under broad pressure in recent sessions with market sentiment strongly anti-risk and global equity prices tumbling.
  
• It will now be interesting to see how the Reserve Bank of New Zealand reacts at their meeting on Thursday (Wednesday British time). They are expected to follow Canada's lead and raise rates, though the accompanying statement may give a less optimistic outlook than has been hoped.
  
• Currently the pound is trading two cents higher this morning, with the price comfortably over 2.17 and nearing a three-month high.

 

 

 

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