Analysis

22nd July 2010

 

 

Sterling / Euro

 

Sterling was marginally up yesterday after the MPC released the minutes from their last interest rate decision meeting.

• Sterling was up almost 60 pips at lunch time on Wednesday after the MPC minutes revealed that Andrew Sentence once again voted in favour of an interest rate rise of 0.25%, suggesting the UK needs to bring inflation under control sooner rather than later.
• The euro was also pushed lower after poor demand at a Portuguese debt sale.
• Sterling has been tracking the US dollar against the euro all week; yesterday was no different as both were up against the single currency.
• The market seems apprehensive about the euro as everybody awaits the stress test results of 91 European banks on Friday afternoon.
• The pair is trading flat at 1.1885 today, as investors wait for important preliminary GDP data for the second quarter from the UK on Friday morning.

 

 

Sterling / US Dollar

 

Having recouped most of Monday's losses on Tuesday, sterling fell again on Wednesday, closing down a cent at 1.5162 against the US dollar.

• Sterling fell broadly on Wednesday despite the dollar softening against most major currencies.
• Markets braced themselves for the first of two speeches last night from Federal Reserve Chairman Ben Bernanke, which had a very dovish tone. Bernanke said that the US economy was 'unusually uncertain.'
• This morning sterling is marginally down against the greenback as investors wait for Bernanke's follow up question and answer session with congress, which is considered to be the most important - this two day event happens twice a year.
• Bernanke will be trying to reassure the market the Fed can reinvigorate the US economy, which has had a run of bad data recently.
• Following the recent poor data, the market will also be looking closely at housing data from the US this afternoon.

 

 

Euro / US Dollar

 

The euro fell against the greenback on Wednesday after a worse than expected sale of Portuguese debt.

• The Portuguese sale of 12 month bills proved that debt stress in the euro area is still at the forefront of investors mind, as it cost Portugal twice as much to borrow €1.25 billion than it did at the last auction.
• The euro fell on Wednesday against the dollar as investors started to lower their expectations for the bank stress test results out on Friday.
• Late in the evening, Bernanke's very dovish speech sent the greenback down almost a cent against the euro as fears of a double dip recession resurfaced.
• This morning the pair is trading sideways as the market waits for the second of the Fed Chairman's Q and A sessions with Congress at 14.30 BST.

 

 

Rest of the World

 

Australian Dollar

 

The pound finished even on what was relatively light trading yesterday, and sluggish trading continues this morning with investors looking towards more comments from Ben Bernanke.

• The Australian dollar started the day up on the pound but finished the day flat on Wednesday, as investors took in the Fed chairman's speech on the current condition of the US economy.
• The dovish tone, while not a surprise, sent investors looking for safe government bonds and selling their risk assets such as riskier currencies and stocks. This brought the aussie down from its highs to finish at the mid 1.72 level.
• This morning has seen the aussie continue its slide from yesterday's highs as second quarter business confidence numbers from Australia, while still positive, have dropped significantly from the first quarter.
• Light trading is still prevailing with investors awaiting the second half of the Fed chairman's testimony on the US economy. The second half is an unscripted Q and A session which is said to be the more important of the two day testimony.
• Import prices from Australia are to be released tomorrow, but are likely to go unnoticed as the market looks towards the health of the global economy.

 

 

New Zealand Dollar

 

Sterling managed to make up early losses as risk-averse trading took hold after Ben Bernanke's speech and investors are now poised for the Q and A session today.

• A negative day in North America pushed the kiwi off its highs leaving the kiwi to finish the day near its starting point of 2.127.
• After the speech by the Fed chairman, investors quickly moved out of riskier assets and towards safe haven currencies.
• That trend is continuing today, with the big winner being the Yen as it is up over half a percent against the pound so far in Asian trading.
• With little data out from New Zealand for the remainder of the week, the kiwi will continue to take notice of global themes and move accordingly with risk sentiment in the global market.

 

 

 

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