Analysis

29th July 2010

 

 

Sterling / Euro

 

On a day of very little consequence, sterling closed slightly up at 1.2002.

• Sterling and the single currency exchanged sentiment throughout the day staying within a relatively tight 70 pip range topping out at 1.2027 and falling as low as 1.1952.
• Some weak US data at lunch time looked as if the safer pound could edge out some gains, however, the euro managed to get back to almost parity with the day's opening price.
• Sterling is down this morning as Nationwide published its monthly House Price Index, showing that the average house price in the UK fell by 0.5%.
• There is little data out for the rest of the week to give sterling/euro direction, however expect to see some movement as traders look to sell out of short positions before month end.

 

 

Sterling / US Dollar

 

Sterling hit a fresh 5 month high against the dollar at 1.5635 yesterday after another round of poor data from the US.

• Dovish comments from the Governor of the Bank of England yesterday sent sterling to its intra-day low of 1.5548 early in the session.
• However, optimism about the UK economy, from positive data published last week, shone through and sterling quickly recovered by Lunch time.
• Poor sales data from the US in the afternoon helped sterling to ensure that it would finish the day up, just below the 1.56 level.
• Today is another day of little data, so expect to see macroeconomic themes and month end set the tone.
• The market will also be pricing in tomorrow's advanced GDP figure from the US.

 

 

Euro / US Dollar

 

The euro fell against the US dollar after weaker than expected orders for durable goods in the US.

• Fears about the US economy were stoked once more as weak US data shifted market sentiment back towards risk aversion.
• The dollar also gained against the euro as a rally in the single currency stalled and investors awaited the release of the beige book from the US yesterday.
• The beige book showed that US economic activity has 'continued to increase,' over the past seven weeks but the rate of growth has slowed significantly.
• The dollar has opened down this morning in reaction to the poor data shown in the beige book as investors look towards other safe haven currencies once again.
• The market today will also have an eye on tomorrows advanced GDP figure from the states.

 

 

 

Rest of the World

 

Australian Dollar

 

Sterling gained nearly two cents against the aussie yesterday as inflation data came in much lower than expected.

• The pound surged against the Australian dollar on Wednesday as the inflation in Australia proved to be much lower than expected. This has priced out any rate rise next week by the RBA leaving the aussie down just over a percent.
• This morning has seen a reversal of yesterday's trend with the aussie higher in Asian trading. This is due in large part to correction after yesterday's drop, and a rebalancing of portfolio's at the end of the month.
• A dovish tone out of the RBNZ over future rate rises has also seen a one cent gain for the aussie over the kiwi, and investors move assets out of New Zealand and towards Australia.
• With only private sector credit data to be released tomorrow, expect a return to the Australian dollar following equity markets. Given that the RBA decision is widely expected to hold rates, there will be little trading that is affected by the interest rate decision.

 

 

New Zealand Dollar

 

The RBNZ made the expected interest rate rise last night, but their dovish tone on future rate rises has hampered the kiwi this morning.

• The kiwi followed in the wake of the aussie yesterday as inflation from Australia brought down both currencies as the New Zealand economy is seen to be strongly related to the Australian economy. This left the kiwi nearly two cents lower.
• The RBNZ decision to raise rates by 0.25% surprised no one, but the follow statements from the RBNZ were very dovish and took aim at both rate rises and the exchange rates.
• RBNZ Governor Alan Bollard stated that while raising rates was necessary, future rate rises will not be at the pace that was originally expected in June.
• The Governor also went on to say that he also felt that the New Zealand dollar is currently overvalued.
• With little data out for the rest of the week, investors will digest today's statements which will bring the kiwi lower, but normal rate movements will return on Friday.

 

 

 

 

 

 

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