Analysis

16th July 2010

 

 

Sterling / Euro

This pair again traded in a tight range yesterday, with the pound eventually closing slightly lower following a successful Spanish bond issue.

• There was positive news from the eurozone as Spain successfully auctioned off 15-year government bonds, calming some of the fears about the country’s fiscal position.
  
• Aside from the auction, there was little direction for this pair with major figures and announcements from the eurozone and UK not due until next week.
  
• The situation remains much the same this morning with the price holding virtually unchanged around 1.1950.
  
• Without any data to focus on, the pound is likely to again be dragged around by movements in equities and more directly by the back and forth in euro/dollar.
  
• Heading into next week, we expect that the pound could resume trading above €1.20, with concerns over rising inflation levels in the UK likely to be highlighted in the MPC minutes.
  
• However, with the negative stream of news from the eurozone stopped for the moment, the euro should continue to garner a degree of support, which will slow sterling’s gains.
  

 

 

Sterling / US Dollar

Sterling hit a fresh two and a half month high against the dollar yesterday as JP Morgan reported strong earnings, buoying risk sentiment.

• JP Morgan Chase reported that second quarter profits were up 76% on the first three months of the year, which raised hopes that other major Wall Street banks will follow suit.
  
• The dollar also came under pressure after the US central bank cut its growth forecast, raising speculation of further credit easing.
  
• The minutes of the Fed’s June policy meeting revealed a shift in emphasis from the central bank, showing increasing concerns over the sustainability of US economic activity.
  
• Sterling has now gained for four straight sessions but has pared its climb this morning with Obama’s financial regulatory bill adding a hefty degree of uncertainty.
  
• At present the pound is holding just above $1.54 and though the price may consolidate its gains today, into next week the price could reach $1.55, helped by the euro’s surge against the US currency.

 

 

Euro / US Dollar

 

The single currency maintained its march higher against the dollar yesterday, creeping above $1.29 as the corporate earnings season got off to a good start.

• The single currency maintained its march higher against the dollar yesterday, creeping above $1.29 as the corporate earnings season got off to a good start.
• JP Morgan Chase, the second biggest US bank by assets, said profits rose by 76% in the second quarter, subduing demand for the already weak dollar.
  
• Warnings from the Fed about the strength of the US recovery also put downward pressure on the greenback with another set of figures from the US due this afternoon.
  
• The euro’s gains came despite a slide in equity prices, marking a retraction in the euro’s close tie with stock prices and highlighting growing real demand for the single currency.
  
• In trading this morning, the price remains unchanged just above $1.29 but the upward trend could continue if scheduled earnings reports from Citigroup, Bank of America, and General Electric match the surprising strength of JP Morgan.
  
• Heading into next week the euro looks set to reach back above $1.30 but this uneasy calm that has fallen over the eurozone could shatter all too easily, which would bring the price quickly back down.

 

 

Rest of the World

 

Australian Dollar

 

The pound picked up its rate of appreciation against the aussie dollar yesterday, climbing over two cents and the trend is continuing this morning.

• Despite the positive earnings reports being seen, the disappointing figures from the US are raising concerns about the strength of recovery and keeping high risk currencies on the back foot.
  
• In addition, Chinese growth data came in slightly below forecasts, adding to fears about the global recovery with investors cutting back bets that the Reserve Bank of Australia will be raising interest rates again this year.
  
• Sterling is up another cent today, reaching toward 1.76 in part as Japanese investors cut long positions ahead of a long weekend.
  
• Surging demand for the euro is also undermining the performance of the commodity-linked currencies and we could see the pound stretching its gains next week.

 

 

New Zealand Dollar

Sterling only enjoyed slight gains against the kiwi dollar yesterday, but its climb has accelerated this morning with the price now at 2.15.

• Bets that the Reserve Bank of New Zealand will raise rates later this month has maintained solid demand for the kiwi but weaker than expected second quarter inflation has prompted investors to price in a slower rise in central bank rates.
  
• Data this morning revealed that inflation in New Zealand rose just 0.3% in the three months to June, against forecasts of a rise of 0.5%, which has seen the kiwi sold across the board.
  
• With wider risk adverse pressures also weighing, sterling has gained over three cents this morning and is continuing to rise.

 

 

 

 

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