Analysis

20th July 2010

 

 

Sterling / Euro

 

Sterling fell to an 8 week low as the euro was broadly higher.

• Despite a downgrade of Ireland's sovereign ratings, sterling fell by almost a cent against the euro yesterday.
• In a day of fairly flat trading, rumours of a large order for euros from the Middle East through a US bank in London kept the euro artificially inflated.
• As the euro gained strength, investors yesterday looked to close out their short positions on the euro.
• With little data out yesterday to affect the pairing, sterling got caught up in what happened between the euro and the dollar, forcing the pound lower.
• Today the pair are trading flat, opening up just above the 1.1770 level.
• Expect to see sterling close a little down as the market prepares for the publication of the minutes from the last Bank of England policy meeting tomorrow.
• There are also rumours in the market that the pair could touch 1.1650 before we see sterling back on track.

 

 

Sterling / US Dollar

 

Sterling fell by almost a cent as Friday's pull back from highs last Thursday continued into Monday.

• With little economic data out yesterday, the market appears to be preparing itself for a week with three major loads of data coming out of the UK, most importantly the MPC minutes tomorrow and GDP figures on Friday.
• This pairing was also greatly affected by trading between the dollar and the euro yesterday.
• However, sterling found support in the Asian session this morning to open just below the 1.53 level.
• Tomorrow's MPC minutes will need to show another member of the select committee joining Andrew Sentence in calling for a raise in interest rates if it is to have a positive effect on sterling.
• Equally, the expected preliminary figure for the UK's quarterly GDP on Friday needs to be on-course or better to help push sterling up through the psychologically important 1.53 level.

 

 

Euro / US Dollar

 

The euro hovered near a two month high against the dollar on Monday, closing at 1.2940.

• Despite a downgrade of Ireland's sovereign rating by Moody's, the single currency managed to stay buoyant against the greenback.
• A large order from the UAE to buy euros for dollars meant that the euro spent most of the day above the 1.29 level.
• Today the euro has opened up above 1.2970, suggesting the euro rally may continue.
• Rumours in the market say some institutions are looking for a return to 1.32 before there is a correction lower.
• With Fed chairman Bernanke giving his bi-annual monetary policy report on Thursday, we could see some dovish sentiment towards the dollar.

 

 

Rest of the World

 

Australian Dollar

 

The pound fell half a cent against the dollar yesterday as poor UK data sent sterling lower, and the pound continues to fall as positive Asian equity markets give a boost to the aussie.

• The Australian dollar was slightly higher against the pound yesterday as sterling took a hit due to poor housing figures. A rebound by the Dow Jones yesterday also provided strength for the aussie, leaving it to finish at 1.7530.
• This morning the pound has continued to fall with Asian equities broadly up. This is due to the Asian Development Bank raising its economic forecast for the region.
• The RBA governor Glenn Stevens made a speech this morning and stated that the RBA will make a rate decision based on inflation numbers, which are due out on 28 th July.
• It is expected that unless inflation is higher than 3% the RBA will keep interest rates as-is. This is still providing strength for the aussie, which is currently hanging just below 1.74.
• With little data out from Australia for the rest of the week investors will be watching the equity markets and moving with risk sentiment.

 

 

New Zealand Dollar

 

Sterling managed to make small gains against the kiwi yesterday due to the lower inflation numbers released on Friday.

• Sterling rose against the kiwi yesterday as investors continue to price in lower than expected rate rises from the RBNZ.
• Despite the lower than expected inflation numbers, next week's rate decision by the RBNZ is expected to produce another quarter of a percent rate rise.
• This morning a positive outlook on the Asian economy by the Asian Development Bank has given equities and the kiwi a boost leaving sterling lower, hovering above 2.14.
• A lack of data this week from New Zealand will lead to investors looking to take cues from risk sentiment and any news on what direction the RBNZ is going to take next week.

 

 

 

 

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