Risk Aversion returns, USD and JPY higher.
The market this week has seen a fresh bout of risk aversion causing stock prices and gold to tumble. As a result both the USD and JPY have appreciated considerably.
GBPUSD has fallen to its lowest levels since May 2009, falling earlier to a low of 1.5655. Some analysts now expect that the Pound will continue to slide against the USD possibly to 1.54 and from there GBPUSD could re-visit the nasty lows of 12 months ago, where GBPUSD traded between 1.3514 and 1.4986 between Jan-Feb 2009. On the other hand, if we see some more positive news we could see GBP rebound past 1.58. However, at the moment it seems that any potential upside should be limited below interbank 1.6070.
In the Eurozone we have seen renewed concerns regarding a number of member’s budget deficits. As a result EURUSD has fallen markedly, hitting a low earlier today of 1.3649. Moreover, EURUSD weakness is spilling over into other crosses and could force the Euro lower against a number of other currencies, including Sterling.
This afternoon at 13:30 we see the release of US Non-Farm payrolls, a major event on the economic calendar. If these numbers disappoint risk aversion could be strengthened further and you would expect both the USD and JPY to benefit from this.
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This week sees a significant amount of important economic data announcements in the UK. Tomorrow Tuesday 19th January at 09:30 sees the release of official UK inflation data in the form of the Consumer Price Index and the Retail Price Index. On Wednesday morning we have the release of the Bank of England’s Minutes and UK employment data. Whilst on Thursday we have UK Money Supply data and public borrowing figures. Finally, Friday sees the release of UK Retail Sales data, again at 09:30.
Please note a full economic calendar is available in the Market Data section of the Currency Matters website.
Sterling has continued its recent climb following yesterday’s comments from Bank of England Monetary Policy Committee member Andrew Sentance, hinting that the Bank’s programme of Quantitative Easing may be put on hold.
Later today we eagerly await the European Central Bank interest rate decision at 12:45 and press conference at 13:30.
On the interbank market Cable (GBPUSD) has pushed through 1.6230 and currently trades at 1.6265, whilst the Pound is also trading above 1.12 against the Euro. EURUSD is currently trading just below 1.45 at 1.4493.
Currency Matters can offer a number of products and strategies which can help you manage your currency risk. Please contact the dealing team for more information.
If you would like to discuss any upcoming foreign exchange requirements, please do not hesitate to contact the dealing team on 01695 581669.
After a poor Christmas period for Sterling, the Pound bounced back dramatically yesterday afternoon particularly against the US Dollar. The Pound has continued to climb against the US Dollar hitting a high earlier this morning of 1.6152, a marked improvement from yesterday’s low of 1.5833. The Pound is currently sitting just below 1.12 against the Euro at 1.1190 and 1.6120 against the US Dollar, whilst EURUSD currently trades at 1.4403.
Let’s see what the New Year brings for Sterling!
Best wishes for the New Year from all the staff at Currency Matters.
The currency markets have started the week in a relatively tight range, however it is possible we could see some volatility as any moves in the market could be exaggerated due to thin market conditions. Levels of trading will likely decrease further as we near Christmas.
Major data this week includes UK and US GDP tomorrow, Bank of England minutes on Wednesday and US jobless claims on Thursday.
EURUSD is currently trading at 1.4359, GBPUSD @ 1.6130 and GBPEUR @ 1.1228.
Wishing you a Merry Christmas and a happy New Year!
The Bank of England has revealed today that it secretly lent RBS and HBOS a total of Â£62 billion in the form of Emergency Liquidity Assistance at the height of the credit crisis following the collapse of Lehman Brothers in the Autumn of 2008.
The Bank of England acts as the “lender of last resort” to financial institutions in difficulty in order to prevent a loss of confidence spreading through the financial system as a whole.
The Bank of England added “In most cases, confidence can best be sustained if the Bank’s support is disclosed only when the conditions that gave rise to potentially systemic disturbance have improved to a point where the disclosure itself should not be a cause of such disturbance.”
It is now viewed that since RBS has signed up to the government’s Asset Protection Scheme and Lloyds Banking Group which took over HBOS has embarked on an alternative strategy to raise further capital in a large rights issue “the Bank judges that there is no longer a need for the assistance to remain secret.”
In further comments to the Treasury Select Committee, Mervyn King the governor of the Bank of England has also stressed the need for the government to eliminate the structural budget deficit over the next parliament. Regarding monetary policy, Mervyn King said that over a period of two to three years the Bank of England would expect to tighten monetary policy by both hiking interest rates and selling some of the assets it had purchased under its Quantitative Easing programme. King argued that it’s hard to see how monetary policy could be more stimulatory, however noted that the Monetary Policy Committee would take any action it thought necessary to achieve the 2% inflation target in the medium term.
Taking into account a range of risks, Mervyn King currently expects that the UK economy will grow by 1.5% in 2010 and 3.0% in 2011.
King yet again took the opportunity to reiterate his support for a weak Pound, which should boost UK exports and help rebalance the UK economy.
The US Dollar remains under pressure as gold soars past $1,130 an ounce. EURUSD climbed as high as 1.4993 and has now settled around 1.4970. The Pound has also had a good day against the US Dollar hitting an interbank high of 1.6780 so far. The markets will now be eyeing Fed Chairman Ben Bernanke’s speech due later today at 17:15.
Over the weekend GDP figures released from Japan smashed market expectations posting third quarter growth at 4.8%. Of course this can largely be attributed to the massive government stimulus package so it is unlikely that these levels of growth will be sustainable.
Sterling will face a number of tests this week as the Bank of England’s Quantitative Easing Programme will take the limelight again. UK inflation data is due tomorrow (17/11) morning at 09:30 whilst the Bank of England Minutes from November’s Monetary Policy Committee (MPC) meeting will be released at 09:30 on Wednesday 18th November.
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This week sees a significant amount of important economic data announcements. The main focus for Sterling will come on Thursday 5th November when the Bank of England meets to announce its latest interest rate decision. Whilst it is widely expected that the Bank of England will keep interest rates on hold, there has been a large amount of speculation regarding possible further expansion of the Bank’s Quantitative Easing programme. The current market consensus suggests that the Bank of England is likely to expand Q.E. from its current levels by at least a further Â£25 billion.
The Federal Reserve meets on WednesdayÂ whilst the European Central Bank (ECB) also meets on Thursday to announce its latest interest rate decision.Â US employment data in the form of Nonfarm Payrolls is the major highlight on Friday’s economic calendar.
I have highlighted some of the major events below. Please note a full economic calendar is available in the Market Data section of the Currency Matters website.
Wed 4th November
* 00:01 UK Nationwide Consumer Confidence. * 09:00 EMU Purchasing Manager Index Services. * 09:30 UK Purchasing Manager Index Services. *19:15 US Fed Interest Rate Decision.
Thurs 5th November
* 09:30 UK Industrial & Manufacturing Production. * 10:00 EMU Retail Sales. * 12:00 UK Bank of England Interest Rate Decision. * 12:45 EMU European Central Bank Interest Rate Decision. * 13:30 EMU ECB Press Conference.
Friday 6th November
* 00:01 UK NIESR GDP Estimate. * 00:30 AUS Reserve Bank of Australia Monetary Policy Statement. * 09:30 UK Producer Price Index. * 13:30 US Nonfarm Payrolls.
Risk appetite has returned to the market today as the latest GDP figures from the US suggest that the US is out of recession. The US GDP figures released earlier today beat market expectations with an annualised rate of 3.5% vs 3.2% expected. Whilst these figures are positive it remains to be seen how sustainable these levels of growth are, especially after the massive government stimulus has finished working itself through the economy.
The following improvement in confidence has led to safe haven currencies such as the USD and JPY coming under downward pressure.
Sterling has advanced through Interbank GBPUSD 1.65 and through Interbank GBPEUR 1.1100.
Expect plenty of volatility as we enter November as sentiment remains fickle. Both the Bank of England and the European Central Bank meet on November 5th. Analysts will be especially keen to see if the Bank of England extends its Quantitative Easing program and if so by how much. Some economists suggest that we could see an extension by as much as Â£50B but the consensus seems to suggest an extension of Â£25B is the most likely outcome.
Currency Matters can offer a number of products and strategies which help you manage your currency risk. Please contact the dealing team for more information.