Analysis

8th July 2010

 

 

Sterling / Euro

 

In another quiet trading session yesterday the pound ended its recent slide against the euro, edging back over 1.20 but remaining within range.

• Once again there was little data for the markets to take direction from, with moves in the equity markets leading the way.
• FTSE's climb back above the 5000 level gave sterling some support, but the single currency managed to stay in range of its two-week high hit on Tuesday.
• In trading this morning the price remains hovering around 1.20 with the markets awaiting policy announcements from both the Bank of England and European Central Bank later today.
• Any change in policy would be a real surprise with both central banks widely expected to keep interest rates on hold.
• However, investors will be watching the ECB press-conference closely, keeping an eye out for information on eurozone liquidity and any developments relating to the financial "stress tests", which 91 European banks are currently being put through.
• Minutes from the BoE's policy meeting are not due for a further two weeks, but will be pivotal to see if Andrew Sentance is still calling for a rate hike and crucially if any other members have joined him.

 

 

Sterling / US Dollar

 

Sterling recovered losses against the dollar on Wednesday, pulling back from the day's low as a recovery in equity prices helped quell concerns about the global economic recovery.

• The pound, along with other non-safe haven currencies, enjoyed a boost as global equity markets turned higher with the FTSE closing above 5000 and the Dow Jones rallying nearly 3.0% to close back above 10,000.
• Sterling's rally lost momentum though in as data on the UK jobs market showed how fragile it still is. This could prove to be a problem when the public spending cuts begin to take effect.
• In trading this morning, sterling briefly extended its gains to hit a two-month high above 1.52 with concerns about the eurozone banking system easing, but the price has dipped back down and is currently trading virtually unchanged on the day.
• It is a livelier day in terms of data with manufacturing figures due from the UK as well as the Bank of England's policy announcement.
• In the US, weekly unemployment claims are due and the slight improvement expected could put further pressure on safer assets.

 

 

Euro / US Dollar

 

Having fallen from a seven-week high against the greenback in early trading, the euro recovered late in the session tracking a rise in global stock prices.

• The euro lost ground following weaker-than-expected data from Germany that showed factory orders were down for the first time this year in May.
• Further data from the German industrial sector is due this morning and another disappointing figure will add to growing concerns about the health of the eurozone's economic recovery.
• Rising risk appetite though put heavy downward pressure on the haven dollar, which enabled the single currency to close above $1.26 and the price remains little changed this morning ahead of the ECB's policy announcement.
• Investors will be awaiting comments from Trichet concerning the European stress tests. A set of negative results could quickly bring the market's attention back to the instability of the European banking sector.

 

 

Rest of the World

 

Australian Dollar

 

Having slipped sharply on Tuesday, the pound continued to lose ground to the aussie dollar yesterday, dropping a further two cents as risk appetite improved.

• The Australian dollar is maintaining its close ties to the equity markets, tracking strong gains in Europe, the US, and Asia.
• There has been little change in the trend this morning following a set of strong employment figures from Australia.
• Data showed that employment surged past expectations, rising by 45,900, against forecasts for 17,500, and the unemployment rate eased, which has revived talks of a possible rate rise later this year.
• The figures have sent the aussie rallying across the board with the pound now back down at 1.73. Although there has been a sharp move recently, the underlying economic concerns about the US and the eurozone remain and risk aversion can quickly return.

 

 

New Zealand Dollar

 

Again moving in close relation to sterling/aussie, the pound slid over two cents against the kiwi yesterday with investors seeking out riskier assets.

• It has been a quiet week in terms of data from New Zealand, with all the currency's direction coming from broader themes.
• Risk has returned to the table over the past few sessions with focus shifting away from the deep set issues in the eurozone, which has benefitted commodity-linked currencies such as the kiwi dollar.
• The strong employment data from Australia has also given the kiwi a boost this morning with the price now down at 2.14.

 

 

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