Analysis

26th July 2010

 

 

Sterling / Euro

 

Sterling jumped almost 2 cents against the single currency on Friday after bullish GDP data from the UK revealed that the UK economy grew at its fastest rate for four years.

• The UK's preliminary GDP figure for Q2 was almost double what was expected, as it came in at 1.1% against the predicted figure of 0.6%.
• The data showed that the economy entered the second quarter of the year on a much firmer footing than previously thought, raising questions on how long the Bank of England will keep interest rates at a record low.
• Sterling gained even more ground against the euro as rumours about the European bank stress test results were leaked, although the rumours were later proven to be untrue.
• Sterling is up again today at 1.1960, as the publication of the European bank stress tests results seems to have provided more questions than answers.
• The tests revealed that all the major European banks passed, with seven banks failing. This has led to questions regarding the criteria of the tests and if they were tough enough.
• Expect this pair to trade sideways today as there is no data out today from either region to give direction.

 

 

Sterling / US Dollar

 

Sterling enjoyed broad gains on Friday, rising almost 2 cents against the US dollar after data revealed that the UK economy grew twice as fast as expected.

• Official figures showed that GDP for the year rose by 1.6% on the year, the biggest increase in two years.
• Sterling rose over 1% against the dollar, hitting a session high of 1.5450, up almost 2 cents from the day's low of 1.5259, bringing last week's high into view just over the 1.5470 level. Beyond this figure, April's high of 1.5524 could be the next target.
• Today sterling has opened up again, trading just below 1.55.
• New home sales data today from the US at 15.00 BST could have a significant impact on this pairing.

 

 

Euro / US Dollar

 

The euro fell against the dollar on Friday as doubts grew that the stress tests of European banks would not reveal the true health of the banks.

• Concerns grew as the Committee of European Banking Supervisors said that losses on sovereign debt holdings would only be applied to banks' trading books, not their banking books.
• The Federal Reserve voiced scepticism over the banks' capacity to withstand 'serious financial market turbulence.'
• However, the euro managed to make up lost ground on the greenback over the weekend as growing risk appetite took centre stage.
• This morning the euro has risen against all the safe-haven currencies, including hitting a seven week high against the yen.

 

 

Rest of the World

 

Australian Dollar

 

The pound is holding level after gains made on Friday, with European stress tests now taking the forefront for today's trading.

• Friday saw excellent GDP numbers from the UK economy giving the pound a 1.5 cent boost throughout trading and with little action due to investors awaiting the stress test results, sterling kept its gains.
• This morning sterling is only slightly higher due to strong demand for riskier currencies, thanks to the better than expected stress tests, which nullified British banks' strong showing in the tests and excellent GDP figures on Friday.
• Lower than expected Producer Price results are slowing the aussie dollar's progress this morning, lowering inflationary pressure. With important inflation numbers coming up this week, investors are bracing for lower consumer prices.
• Even with strong Asian equity markets this morning the aussie is currently lower at the mid 1.72 level.
• Until Wednesday morning when the quarterly inflation rate is released, expect the aussie to continue to follow risk sentiment in the market.

 

 

New Zealand Dollar

 

Sterling is showing little movement against the kiwi this morning as the rise in risk appetite cancels out the positive sentiment towards the pound after Friday's GDP numbers.

• The pound made strong gains on Friday with excellent GDP numbers, which led investors to buy sterling. With investors awaiting the results from the stress tests last Friday, nothing could stop the pound's 1.5 cent rise.
• This morning the kiwi is breaking even, despite a strong move towards riskier assets. The Nikkei is currently up over 2 percent.
• The strong stress test results have shown that the British banking system is strong and has plenty of capital, leaving the pound level at 2.121.
• The market will be looking to the RBNZ's rate decision on Wednesday evening, with expectations that the rate will be raised by 25 basis points.

 

 

 

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