All posts by mporter

Dollar Strength

The Dollar has continued to appreciate with the Dollar Index breaking last week’s high and reaching a high of 83.50 so far today. GBPUSD hit a new recent low of 1.5136 on the interbank market today and a test of the recent low of 1.5008 last seen on the 29th May is favoured, with a likely break leading to a test of support at 1.4830. EURUSD currently trades around 1.30 after briefly breaking below 1.30 earlier today hitting a low of 1.2991.

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Pound Spikes Following UK Jobs Report

After being challenged by Labour leader Ed Miliband during Prime Minister’s Questions today, Prime Minister David Cameron was more than more than happy to rebuke Mr Miliband’s declaration that the UK economy was faltering by citing this morning’s positive UK jobs data. The UK Claimant Count Change for May fell by -8.6K, surpassing market expectations of a fall of just -5.0K, and UK Average Earnings also rose by 1.3%, one percentage point higher than was expected.

Immediately following the release cable spiked to 1.5678 before levelling out, whist GBP/EUR rose to a daily high of 1.1808 and held close to this level throughout the rest of the morning. GBP/EUR has since levelled off to 1.1790 and continues its long established sideways trade, remaining within the 1.16 to 1.19 range as it has done for the past four months. After reaching a daily high of 1.5682 and closing in on a four month high, GBP/USD has now dropped back to 1.5648.

Sterling is currently outperforming right across the board and has gained 6% in the past three months as recent UK data has suggested a recovery of the UK economy may well be underway. However, should this positive data not continue, combined with Mark Carney’s propensity to freely expand monetary stimulus as required, next month could herald a dramatic turnaround for sterling when Mr Carney begins his governorship at the Bank of England.

With very little data due out for the rest of today, trader’s attention will now turn to tomorrow. Following the bullish remarks made by ECB president Mario Draghi last week and French president Francois Hollande’s declaration at the weekend that “the crisis in Europe is over”, market participants will be focused on the ECB monthly report due to be released tomorrow in the hope that further indication or rhetoric may be given affirming such unqualified optimism. Consequently we could see substantial movement in EUR/USD following the release of this report, especially considering the fact that the pair is currently trading close to a four month high at 1.3295.

Please find a summary of this week’s economic calendar below:

00:50 Japanese Foreign Bond Investment
02:30 Australian Employment Change
02:30 Australian Unemployment Rate
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Retail Sales
15:00 US Business Inventories

00:50 Bank of Japan Policy Meeting Minutes
10:00 EU Consumer Price Index
13:30 US Producer Price Index
14:15 US Industrial Production
14:55 US Reuters/Michigan Consumer Sentiment Index

UK Inflation Falls and Takes Pound With it

As expected this morning UK inflation figures fell, even lower than what the markets had been expecting. UK Consumer Price Index fell to 2.4%, down from 2.8% the previous month and below market expectations of 2.6%. UK Core Consumer price index was also down 40 basis points to 2.0%, recording a figure below market expectations of 2.3%. UK Producer Price Index and UK PPI Core Output were also down at 1.1% and 0.8% respectively.

In what was a rather busy morning in terms of UK data releases, nearly every piece of economic data released concerning the UK economy was negative. As would be expected Sterling fell right across the board following these inflation figures’ release. GBP/EUR fell to a daily low of 1.1777 however remained within the approximate 1.5 cent range that the pair has been trading within for the last month. Similarly Cable fell to a daily low of 1.5163, continuing the pairs decline since early May with a further test of the 1.5157 level now likely and should this break the next area of substantial support being found at 1.5127.

Much earlier this morning we saw the Japanese Yen return to its depreciating ways following Japanese Economy Minister Akira Amari’s much more coy response regarding the potential end to the Yen’s slide against the Dollar. This comes after the Yen strengthened yesterday following the economy minister’s comment that suggested further weakening of the Yen may adversely impact upon Japanese people. The bank of Japan’s record monetary stimulus program would now appear to be having the desired effect that Japanese finance ministers had initially hoped it would. Figures released in Tokyo last week showed that Japanese GDP rose to an annualized 3.5%, suggesting that the Bank of Japan’s efforts to end a decade of inflation are actually having a positive impact on the economy. This increase in money supply has had the inevitable, yet “unintentional”, effect of depreciating the Yen, which rose to above USD/JPY 100.00 two weeks ago for the first time in over four years, and has consequently lead to a boost in exports. Data released so far suggests that BoJ Governor Haruhik Kuroda may actually be able to reach his ambitious target of reaching 2.0% inflation in just two years. USD/JPY is currently trading at 102.68 and speculation will now grow as to whether the pair will reach 105.00.

With very little data due out this afternoon, trader’s attention is likely to turn to tomorrow where we will see a number of key releases. In the early hours of tomorrow morning the Bank of Japan is set to make their interest rate decision and monetary policy statement, potentially giving the market an indication of how long their extremely loose monetary policy will continue. Moving back westwards, later tomorrow morning UK BoE minutes will be released, followed by the US FOMC minutes tomorrow evening. As Sir Mervyn King comes to the end of his tenure as governor of the BoE, it is unlikely that we will see any drastic information released in the BoE minutes, however the market will be keen to see if the FOMC minutes or Fed Governor Ben Bernanke’s press conference give any indication as to when a reduction in the Federal Reserve’s bond buying program will be brought to an end.

Euro Zone Inflates as Does the Euro

Today is a day of inflation figures as UK, Euro Zone and US Consumer Price Index data is set to be released. So far today we have seen figures released confirming that UK inflation remains above the Bank of England’s target of 2%, with UK Consumer Price Index figures remaining unchanged at 2.8%. Euro Zone inflation has increased marginally to 1.5%, up from 1.4% in February. Following these releases, the Euro has strengthened across the board as the likelihood of an ECB rate cut has now decreased on the back of the higher Euro Zone inflation figures.

This morning’s inflation figures have had the greatest impact upon the markets thus far today, as despite German Economic Sentiment Survey data falling sharply to 36.3 this month, the Euro has still strengthened against both the Pound and the Dollar. EUR/USD has reached a high of 1.5312 so far this morning, whilst GBP/EUR fell to 1.1699 following the inflation figures release. Attention will now turn to the US this afternoon where inflation figures and housing data are set to be released. Market participants will be keen to see whether the recent poor data coming out of the US continues.
Please find a summary of this week’s economic calendar below:

ECB President Mario Draghi Speech
09:30 UK Consumer Price Index
10:00 Euro Zone Consumer Price Index
10:00 Euro Zone Economic Sentiment Survey
10:00 German Economic Sentiment Survey
13:30 US Consumer Price Index
13:30 US Housing Starts

09:30 UK BoE minutes
09:30 UK Claimant Count Change
09:30 UK Unemployment Rate
09:30 UK Average Earnings
15:00 Canadian BoC Interest Rate Decision
19:00 US Fed’s Beige Book

G20 Finance Minister and Central Bank Governors Meeting
09:30 UK Retail Sales
13:30 US Initial Jobless Claims
15:00 US Philadelphia Fed Manufacturing Survey

G20 Finance Minister and Central Bank Governors Meeting
07:00 German Producer Price Index
13:30 Canadian Consumer Price Index
17:00 US FOMC Member Stein Speech

Currency Matters

Yesterday saw substantial volatility within the markets courtesy of mixed PMI figures released in Europe and a tacit message from Mario Draghi suggesting that the European recovery will take longer than expected. Whilst the BOE’s decision to maintain interest rates and quantitative easing levels at their current level had little impact upon the markets, German and Euro Zone PMI figures falling short of expectations and Mario Draghi’s negative assessment of Europe’s recovery caused a substantial move in the euro throughout the day whilst GBP/EUR eventually closed flat at 1.1777. The dollar experienced similar levels of volatility yesterday following higher than expected US Initial Jobless Claims as GBP/USD closed near a six week high of 1.5225 and EUR/USD also closed up at 1.2926.

Despite the relatively high levels of volatility that were witnessed on both sides of the pond yesterday, the largest market movements were attributed to economic news coming out of Asia. In the early hours of yesterday morning the Bank of Japan committed to a substantial bond buying program worth over half a trillion dollars per year – the size of which took markets by surprise. Unsurprisingly however this lead to the most considerable Yen sell off that we have seen for quite some time with the Yen closing down across the board. The Yen touched a near three and a half year low yesterday against the Dollar and has now pushed above this level with USD/JPY reaching 97.15 so far this morning, whilst GBP/JPY has hit 146.67.
This morning we have seen relatively minor movements in the markets following the release of Euro Zone Retail Sales and German Factory Orders, both of which came out above expectations. Market participants are likely regrouping following yesterday’s volatile trading environment and preparing themselves for the release of the US Nonfarm Payrolls later today. Following the weaker than expected US data yesterday, another subpar performance today for the US jobs market could cause the Greenback to drop off even further, with GBP/USD potentially reach 1.53+.

Cyprus Bailout

Not so much ‘good news and bad news’ for Cyprus this morning, rather ‘bad news and worse news’. Whilst on the face of it the 10 billion euro bailout, agreed by the Troika late last night to help save the fledging Cypriot economy, has helped reduce uncertainty within the Euro Zone as evidenced by market reaction earlier this morning in Asia and also across Europe today, it has come at a cost, a very high cost which will undoubtedly throw Cyprus into the inevitable recession that it already faced.

The lesser of two evils was essentially what was agreed last night as the dreaded levy that depositors of Cypriot banks had feared, was enforced upon the agreement and will form a crucial part of the bailout. Depositors with over €100,000.00 will now face a mandatory ‘tax’ of around 30% on their holdings, something that will likely do very little to halt a run on the countries banks this week. However, when the only other alternative is to leave the Euro Zone, there appeared to be no other option, especially when a potential return to the Cypriot Pound would likely result in over a 30% decrease in the value of any funds currently held within Cyprus.

Despite the bailout, the outlook remains very bleak for Cyprus who will now inevitably face a prolonged recession. As a result of the bailout it would also seem inevitable that anyone still holding funds in Cyprus will remove them and any future depositors will now be non-existent – effectively killing Cyprus’s role as somewhat of an off shore financial centre. Similarly, despite the positive reaction in Europe this morning there will now be concerns regarding deposits held within other European countries at risk of requiring future bailouts i.e. Spain and Italy.

The Pound closed up against the Euro at 1.1809 and down against the US Dollar at 1.5170. The Euro is down against the US Dollar at 1.2850.

Mark Webster

Pound Punished by PMI

The wait goes on. The wait for positive data concerning the UK economy that is. Whilst it is to be expected that data releases concerning a country’s economic performance will naturally vary from week to week, and month to month, it is far from the ordinary for a country, and in this case the UK, to record consistently negative data for several months. Just as these data releases are out of the ordinary, correspondingly so are the rates.

As we have been reporting for the past few months, since the turn of the year Sterling has weakened at an alarming rate. After having appeared to level off against both the Euro and the Dollar in recent days, hopes had emerged that the Pound may well recover some of its losses. However these hopes were quashed this morning following the release of PMI data across Europe. The UK was expected to record a figure of 51.0 and consequently markets reacted negatively when the UK’s actual figure of 47.9 was released. With positive PMI figures released for the majority of the other European countries this morning, this led to a significant sell off in the Pound. Sterling hit daily lows of 1.1514 and 1.5014 against the Euro and the Dollar respectively immediately following the release, before levelling off.

This afternoon we will see a number data releases from the US including PMI, Mortgage Approvals, Personal Income, and Personal Consumption figures. These figures could stoke further movement in the Dollar which forced Cable to a new eighteen month low earlier today.

Mark Webster

Sterling on Life Support

Having dropped over 6% since the turn of the year against the Euro and the Dollar, Sterling has finally began to level off, at least for the time being, and has been trading relatively sideways for the past few days. After what had seemed to be an unrestricted collapse since January, Silvio Berlusconi came to the Pounds rescue. As stalemate lingers over government elections in Italy, the heightened uncertainty regarding the country’s future leadership, and the nightmare scenario of a return to power for Berlusconi, the Euros advance has correspondingly stalled. Similarly, the Pounds decline against the Greenback has petered out this week following talks of US sequester budget cuts and a speech made yesterday by Ben Bernanke dispelling rumours that there could be a sudden easing in QE.

This morning we saw figures released in Europe that showed Germany’s Unemployment Rate rose marginally to 6.9% and the Euro Zone Consumer Price Index fell to 1.3%. This led to a drop in the Euro as GBP/EUR reached a daily high of 1.1580. Sterling is also up against the Dollar this morning, currently trading at 1.5180 and targeting a retest of the daily high of 1.5202. We may well see further movement in the rates this afternoon as German Consumer Price Index figures are due to be released at 13:00 and US GDP figures at 13:30.

Looking forward to tomorrow we will see PMI figures released from China in the morning, then Europe and finally the US in the afternoon. Market participants will be eager to see whether China’s recent return to comprehensive growth has continued, and whether the UK’s long run of poor economic data persists. Given the Pounds recent bottoming out against the Euro, positive UK data tomorrow could well initiate a rebound in Sterling.

Sterling falls as the UK loses AAA credit rating

The Pound has fallen further this morning as the financial markets react to the loss of the UK’s AAA credit rating. Moody’s cut the UK’s credit rating from AAA to AA1 citing ‘challenges that subdued medium-term growth prospects pose to the government’s fiscal consolidation programme, which will now extend well into the next parliament’. This is the first such credit rating downgrade since 1978. The Pound is now trading at its lowest level against the Euro since October 2011 and the lowest level against the US Dollar since July 2010. The Pound has depreciated 6% this year and further falls in Sterling are possible.

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Punch Bag Sterling

Unemployment figures released this morning showed that the UK ILO Unemployment Rate rose marginally to 7.8% from 7.7%, whilst the UK Claimant Count Change improved to -12.5K for the third month in a row. However, this slight glimmer of hope that the UK economy may actually be starting to show signs of recovery, offered little help to the Pound this morning which has taken somewhat of a battering following the release of the BoE minutes.

Sterling plummeted at 9:30 GMT against both the Euro and the Dollar, following the release of BoE minutes which confirmed that three of the nine MPC members favoured an increase in stimulus at this month’s policy meeting. Paul Fisher, David Miles and BoE Governor, Sir Mervyn King were the members who were voted down, though this does suggests that the committee is potentially warming to the idea of additional stimulus in order to help revive the economy. This is something we may well see in the coming months which, whilst potentially helping the economy, certainly wouldn’t do the Pound any favours.

GBP/EUR dropped over a cent in the space of twenty minutes after the BoE minutes were released, before levelling out to its current trading level of 1.1430. Cable faired similarly, as the pair dropped from 1.5439 to a daily low of 1.5294 in less than an hour, and is currently trading at 1.5308. The GBP/EUR charts aren’t looking too favourable for the Pound either and the general outlook is rather bearish for Sterling at the moment. However, the Euro Zone has by no means ‘recovered’ and with elections in Italy coming up and rumblings from a number of European leaders that the Euro is far too high at present (potential for EU interest rate cuts), it would appear that there remains significant scope for GBP/EUR to recover at some point, the question is when.