Analysis

23rd July 2010

 

 

Sterling / Euro

 

Sterling fell against the single currency yesterday after a successful sale of T-bills in Hungary and positive corporate data increased investor risk appetite.

• Markets were rocked earlier this week as Hungary's €20billion loan from the IMF/EU was suspended, raising investors' concerns about the government's ability to secure funding. However, the sale of all planned T-bills helped to restore confidence.
• Sterling fell against the euro, which gained after a jump in a flash reading of eurozone purchasing managers' sentiment.
• The euro also gained support as confidence in Europe rose, following manufacturing data which revealed that France and Germany started the third quarter on a stronger note than expected.
• However, the pound has opened up this morning as the market awaits the preliminary results for the UK's GDP in Q2.
• Stress test results for 91 European banks are being published at 17.00 BST this evening, giving the market little time to react until Monday morning. Early reports apparently show that 18 of Spain's savings banks have failed the test.

 

 

 

Sterling / US Dollar

 

Sterling was up against the greenback yesterday as the Fed Chairman remained dovish in the second of his sessions in Congress.

• The dollar suffered broadly after Federal Reserve Chairman Ben Bernanke failed to reassure the market on the state of the US economy after a long run of poor data.
• Sterling also gained support against the dollar on Thursday after strong UK retail sales data suggested that the British economy is improving.
• Figures from the eurozone and rising global stock markets helped sterling yesterday, as they helped boost demand for riskier currencies.
• This morning sterling is up, trading just above the 1.53 level as the market waits for the preliminary results of the UK's GDP figure for the second quarter.

 

 

Euro / US Dollar

 

The single currency rose by well over one cent against the dollar as the greenback fell across the board as investors looked towards higher yielding assets.

• Positive housing data from the US and solid manufacturing data from the eurozone buoyed the euro as investors seemed to increase their risk appetite.
• A reversal in risk appetite and market sentiment allowed most currencies to gain against the US dollar.
• The US dollar also lost out against other safe-haven currencies as more risk-averse investors preferred currencies backed by economies which have had a series of better results than the US.
• The single currency is currently trading down this morning just below the 1.29 level, as the market eagerly awaits the results of the European bank stress tests. Although the market will react to the initial figure, it is the supporting data that is published that will have a longer lasting effect on the market.

 

 

Rest of the World

 

Australian Dollar

 

The pound fell 2 cents against aussie yesterday as strong earnings from Major US companies drove up risk appetite, while this morning investors are looking toward the European bank stress tests.

• The aussie hit a 4 week high yesterday as US companies such as UPS and Caterpillar posted better than expected Q2 earnings figures. A continued strong recovery for major US firms has buoyed investors, as a sustained global economic recovery seems more likely.
• This morning trading has been slow with most investors looking towards the European stress tests which will show the state of the European banks.
• It is expected that a number of smaller banks will fail the test, while the bigger German banks should pass. Any deviation from this expectation will shake risk sentiment globally.
• Australian import and export price rises went largely unnoticed this morning. UK GDP will provide some movement, but will most likely be overshadowed by the stress tests in Europe.
• Looking to next week, Asia will have a chance to respond to the stress tests and inflation rates on Wednesday will provide direction as to where RBA will take interest rates.

 

 

New Zealand Dollar

 

Sterling hit 4-week lows yesterday against the kiwi on excellent earnings in the US, while this morning everyone is awaiting the European stress tests.

• Yesterday's higher than expected profits in the US brought about a strong risk appetite moving the kiwi up over a percent.
• With no data out today from New Zealand, investors are looking ahead to today's stress tests which are going to provide an insight into the strength of the European banking system.
• Good results will ease worries about a shortfall in capital and lending, but poor results could lead to widespread risk-averse trading.
• Looking to next week, we will see the RBNZ make an interest rate decision in which they are expected to raise rates up to 3%, which is the only major news out of that country next week.

 

 

 

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