Analysis

28th July 2010

 

 

Sterling / Euro

 

Sterling extended gains against the single currency after bullish UK retail sales data.

• A survey showed that monthly sales figures in July rose at its fastest pace in three years, smashing analysts' forecasts.
• The news further pushed up demand for riskier assets, following on from last week's news that British GDP growth had risen sharply in the second quarter.
• Positive banking data helped the pound to rise against the euro, as Deutsche Bank came under fire over its provisions to cover its exposure to the European debt crisis.
• This morning the pair is trading relatively sideways as the market prepares itself for the Bank of England's Monetary Policy Committee to speak on the state of the UK economy and next month's interest rate decision.
• In a week of little data between these two, the market may look to US data for direction.

 

 

Sterling / US Dollar

 

Sterling rose to hit a five month high against the US dollar on Tuesday after better than expected UK sales data and an improvement in investors' risk appetite.

• Data from the Confederation of British Industry showed that monthly sales in July rose considerably faster than expected, helping to boost investors' risk appetite.
• A run of strong economic data from the UK has aided higher yielding assets, as global stock markets rise and riskier currencies make gains over their more conservative counterparts.
• Sterling stuttered just below the 1.5550 level as gains were hampered ahead of option barriers at 1.5550 and the 200-day moving average at 1.5554, before breaking through to close just below the 1.56 level.
• Sterling is up again this morning, over the 1.56 level despite data from Australia showing that inflation last quarter was lower than expected. It is predicted that the RBNZ will raise interest rates this evening, and such a bullish move could lend support to other riskier assets.
• This morning sterling could make further gains as the market looks for a positive reaction to the Bank of England's Monetary Policy Committee speech on the state of the UK economy.

 

 

Euro / US Dollar

 

The euro traded flat against the dollar on Tuesday after a report showing US consumer confidence fell in July to the lowest level since February.

• The single currency hit an intra-day high of 1.3043 in the morning, after strong European and British data gave riskier currencies a boost over their safer counterparts.
• However, on Tuesday afternoon poor consumer confidence figures from the US turned the euro's rally the other way, as sentiment was revived for refuge and the euro closed only slightly up on the day at 1.2995.
• With little data out today, the euro has started the session up despite data from down under showing that inflation is down at around 0.6%.
• This evening, the publication of the 'Beige Book' from the states could provide direction for this pairing, as the data used in the book will be used in the Fed's next interest rate decision.

 

 

Rest of the World

 

Australian Dollar

 

The pound gained a cent yesterday as sterling was broadly higher, and this morning inflation numbers from Australia have shown a much lower inflation rate.

• Strong sales numbers yesterday brought the pound higher, and with little movement in the markets to counteract the strong data, especially in the equity markets, the pound finished the day higher against the aussie.
• This morning has brought the long awaited inflation numbers for the Australian economy. The inflation numbers were much lower than the expected 1%. The final figure was 0.6%.
• The much lower inflation rate means that the chance of an interest rate rise by the Australian government next week has all but disappeared.
• With the chance of a rise in interest rates now very slim, investors are selling the aussie, and the currency has already dropped over a cent in Asian trading.
• Once investors price in the lower inflation figures, expect the aussie to return to correlated movement with equity markets, as there is little data out from Australia for the remainder of the week.

 

 

New Zealand Dollar

 

Sterling rose just over a cent on Tuesday, while this morning has seen the pound continue the trend and rise in Asian trading.

• Better than expected sales figures in the UK has led to a broadly higher pound yesterday, while stagnant equity markets kept the kiwi relatively quiet.
• This morning has seen more of the same, with the pound continuing to rise. This is largely due to the New Zealand dollar following in the wake of a broadly lower Australian dollar, which weakened on the back of a lower than expected inflation rate.
• Also, a survey released showed lower business confidence figure in New Zealand, adding to the pressure on the kiwi this morning.
• Investors have largely priced in a rate rise that is expected by the RBNZ, which is due to make its decision this evening.
• With only minor data to be released for the remainder of the week, expect the New Zealand dollar to continue to follow equity markets after the rate decision.

 

 

 

 

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