Analysis

11th June 2010

 

 

Sterling / Euro

 

Having yo-yoed either side of €1.21 yesterday, the pound eventually closed marginally higher against the euro, maintaining its upward trend.

• Unsurprisingly, the Bank of England held interest rates at a record low 0.5%, remaining on the sidelines ahead of the government's June 22 nd budget which will detail the extent of the fiscal tightening Britain faces.
• The ECB also kept interest rates on hold as was widely expected, but the press conference gave ECB President Trichet a chance to explain their bond buying programme.
• Trichet reiterated to the market that the programme is not quantitative easing, and does not constitute a change in monetary policy. Despite a relative lack of detail, the market responded positively, with the euro gaining traction.
• However, with the underlying problems in the eurozone still very much in focus, the euro failed to sustain its gains and the pound is creeping higher again this morning.
• In trading today, investors await figures from the UK manufacturing industry. We are not expecting much reaction from the markets, with the price likely to remain capped in its recent range.
  
  

 

Sterling / US Dollar

 

The US dollar came under broad pressure yesterday as global stocks rallied, pushing sterling over one and a half cents higher to close back above $1.47.

• The US and Japanese currencies both opened on the back foot following reports that showed economic growth in Asia is still accelerating, damping demand for safer assets.
• A strong showing in the European markets, with the FTSE making solid gains, was followed on the US session with the Dow closing up over two percent.
• Investors were also taking the view that, for the meantime at least, the negativity for sterling has been priced in.
• In trading this morning, sterling is continuing to hold around $1.47, briefly nearing a one-month high, with investors expecting some positive figures from the US this afternoon.
• Whilst this more optimistic sentiment toward the global recovery holds, we could see sterling edge higher, however the situation in Europe remains little changed and we expect that the uncertain conditions will continue to weigh.
  
  

 

Euro / US Dollar

The resurgent euro climbed back over 1.21 against a broadly weaker dollar yesterday, receiving a welcome boost following comments from Trichet.

• In early trading, the single currency strengthened as stock prices climbed on speculation that Europe's fiscal debt crisis is unlikely to derail global growth, fueling investor appetite for riskier assets.
• This sentiment was strengthened as a Spanish bond issue enjoyed strong demand from investors easing concern about the country's ability to finance its debt.
• The euro was also buoyed after ECB President Trichet said government bond purchases would not alter the bank's monetary policy stance.
• Trichet did not introduce new measures to suggest the ECB was moving into emergency mode, which served to support the euro's rally.
• In trading this morning, profit taking has seen the single currency cap its upward movement, but remains holding above 1.21 for now.
• The market remains cautious and after some brief short-covering we are likely to see the euro resume its downtrend, with a move back below 1.20 a possibilty in the near term.

 

 

Rest of the World

 

Australian Dollar

 

Sterling lost nearly two and a half cents yesterday against the aussie dollar as strong trade numbers from China boosted global demand for riskier currencies.

• Stocks around the world advanced as a report showed China's exports jumped 48.5% in May from a year earlier, the biggest gain in six years.
• Impressive unemployment figures from Australia also supported the higher-yielding currency.
• Another round of data from China this morning, though not disappointing, was broadly in line with expectations and has led to profit taking on the aussie, enabling the pound to climb back above 1.74.
• Sterling has now been stuck in this mid 1.70 range for nearly a month unable to move higher with doubts over the UK economic recovery still in focus.
• However, the general volatility of the financial markets at present is likely to continue weighing on the higher-risk aussie, and we do not expect the price to fall too much lower in the short term.

 

 

New Zealand Dollar

 

Following an interest rate rise and strong Chinese export numbers, the kiwi gained 1.6% against the pound, but the price is coming back this morning.

• New Zealand's dollar advanced across the board as central bank governor, Alan Bollard, raised the benchmark interest rate to 2.75% and said "underlying inflationary pressures are expected to increase."
• Also supporting the higher-yielding currencies, global asset markets had a strong day, with commodities and equities boosted by positive economic reports in China, Japan and Australia.
• In trading this morning, sterling has pared its losses, steadily retracing its losses as investors fear that the rally in risky assets may have been too fast considering the still fragile mood in the markets.
• At present the pound is trading around 2.15, up 0.5% on the day.

 

 

 

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.