Analysis

25th June 2010

 

 

Sterling / Euro

 

The pound rallied up to its strongest point against the euro since November 2008 yesterday before slipping back at the end of the European session to close at 1.21.

• Sterling enjoyed an early boost as comments from a ratings agency sustained optimism that the budget cuts will keep Britain's top credit rating intact.
• Meanwhile the euro came under broad pressure as concerns over the fiscal health of countries on the periphery of the eurozone returned to dominate price action on the currency markets.
• The euro's fall came as the price of insuring against a default on Greek government debt rose to a record high.
• Late in the session though, the euro made a brief recovery as investors sought to cash in on profits with the price coming back from its high above 1.22.
• In trading this morning sterling has opened relatively unchanged with the price lingering at €1.21. There are virtually no figures due out today and we expect that the price will remain tightly range bound ahead of the G20 meeting this weekend.
• Heading into next week though, we should see sterling resume its upward trend with sentiment toward the UK economy slightly improved.

 

Sterling / US Dollar

 

Having moved to a fresh six-week high, breaching $1.50, the pound capped its gains in later trade to close marginally lower against the dollar.

• Sterling was in solid demand following a positive response from ratings agencies to this week's emergency UK Budget and Wednesday's hawkish Bank of England minutes also continued to provide support.
• The pound came off its high in later trade though with falling US equity markets lifting demand for the safe-haven dollar. After a relatively disappointing week of figures from the US, the Dow Jones dropped another one and a half percent with risk aversion on the rise.
• In trading this morning the price remains virtually unchanged, holding just above $1.49.
• In the US, the final estimate for first quarter GDP is due today though it is not expected to offer any surprises with growth forecast to remain unchanged at 3.0% year-on-year.
• Heading into next week sterling may struggle to push too much higher with strong resistance levels at 1.5050 and 1.5090. With risk waning we expect that the downside risks for the pound remain prevalent.
  

 

Euro / US Dollar

 

Market attention returned to the problems in the eurozone yesterday but profit taking and real money inflows prevented the euro from sliding with the price holding above $1.23.

• Concerns over Greece were in focus as the cost of protecting its government debt against default rose to another record high.
• The surging cost to protect from a Greek default spurred concern the European debt crisis is worsening, which in turn led US stocks lower with banks and retailers leading the Standard & Poor's 500 Index to a fourth straight decline.
• However, the dollar failed to capitalise against the euro, still reeling from a less bullish outlook on the US economy from the Federal Reserve during the previous session.
• In trading this morning trading is relatively subdued with no major figures or announcements due. The price is continuing to hold at €1.23, but we do not expect this to hold with the euro looking likely to drop back next week.

 

Rest of the World

 

Australian Dollar

 

Sterling gained for the third day in a row against the aussie yesterday and is continuing to climb this morning as risk appetite wanes.

• Renewed concerns over the eurozone's fiscal health weighed on global equities, with the resulting fears over growth putting pressure on commodity-linked currencies.
• The Nikkei again closed down over 2.0% overnight, which has put further pressure on the aussie today with sterling now creeping back toward 1.73 and a two-week high.
• We do not expect too much movement on the day with investors awaiting announcements from the G20 summit this weekend where the issue of the Chinese currency is likely to be raised.
• The summit, which will also be a first for the new Australian administration, is likely to provide some interesting comments that could affect markets early next week.
• At present sterling is holding below 1.73 but with risk aversion on the rise we should see the price higher next week.

 

 

New Zealand Dollar

 

The pound gained over a cent against the kiwi yesterday and is maintaining this trend today with risk appetite firmly retreating.

• The kiwi fell sharply as risk appetite continued to fall in light of recent comments from the US Fed and European economic worries.
• Poor performance from global equity markets over the past couple of days have left investors seeking safer positions until the market settles.
• In data this morning New Zealand's trade balance came in slightly weaker-than-expected, which has added downward pressure to the kiwi but the main driving force remains the risk adverse climate.
• At present the price is hovering around 2.12 but, as with the aussie and other higher-yielding currencies, we expect that the pound could turn higher into next week.

 

 

 

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