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Daily FX Commentary
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Daily FX Commentary
Mon, Apr 20 2009, 13:05 GMT
Sterling risks in focus
Fiscal policy uncertainties will be an important feature this week with the annual budget release on Wednesday. Trends in the global banking sector will also continue to be watched very carefully over the next few days and any increase in fears surrounding the US sector would tend to undermine the UK currency. The CBI forecast that 2009 GDP would decline by more than expected, but it was optimistic that the worst of the decline was now over which will limit the impact.
The UK currency was little changed against the Euro at close to 0.88 while Sterling dipped to lows near 1.4750 against the dollar. The underlying trend continued on Monday with Sterling edging slightly lower against the dollar while it held firm against the Euro. The UK currency lost ground in Europe as fiscal fears increased despite a reported rise in house prices for April by Rightmove.
Published on Mon, Apr 20 2009, 13:05 GMT
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Daily FX Commentary
Tue, Apr 14 2009, 14:16 GMT
It is very hard to get excited about the US fundamental position and the dollar outlook, especially with the massive US budget deficit. The Euro-zone economy will also remain an important focus in the short term and overall confidence is liable to weaken further, especially with dovish remarks from ECB officials. Euro vulnerability on the crosses will also tend to drag it down against the dollar. The best strategy at this stage looks to be selling Euros on rallies above the 1.3350 level.
After dipping sharply in New York trading on Thursday and remaining weaker on Friday, the Euro staged a powerful recovery on Monday. Trading liquidity was very low for much of the day, especially with European markets still closed for the Easter holidays. From lows near 1.3120, the Euro rallied strongly to a high around 1.3390 in New York. Risk appetite was generally firmer which underpinned the Euro to some extent, although the impact was magnified by the lack of liquidity.
After better than expected results from Goldman Sachs, positive earnings data from the banking sector would help underpin risk appetite and this would tend to undermine the dollar. The impact will be offset by industrial fears with an earnings warning from Boeing and GM bankruptcy speculation
There will still be an underlying lack of confidence in the Euro-zone economy with default spreads on German debt edging higher. The comments from ECB officials have also continued to suggest that interest rates will be cut again. Euro vulnerability was illustrated by declines against Sterling and the Swiss franc over the past 24 hours.
Published on Tue, Apr 14 2009, 14:16 GMT
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Daily FX Commentary
Wed, Apr 8 2009, 13:09 GMT
Dangers of Easter volatility
Market liquidity will be lower on Thursday ahead of Friday when European markets will be closed for the Good Friday holiday. The dangers posed by reduced liquidity were illustrated last year. On the equivalent Thursday in 2008, the Euro weakened by 240 pips during the day as a serious dollar shortage developed as demand spiked higher at a time when supply was limited. Central banks have been more aggressive in supplying dollar liquidity this year and this should lessen the risk of a repeat performance, but there will be clear dangers. If the dollar does gain strongly, then there will be a clear opportunity to sell it late on Thursday as the move would be likely to reverse early next week.
The Euro dipped to lows around 1.3225 ahead of the US open on Tuesday. Risk appetite remained slightly weaker and this remained a negative factor for the Euro as dollar selling eased. There was, however, a further small decline in 3-month dollar Libor rates which suggests that money-market tensions have not escalated at this stage and this should limit immediate defensive dollar demand.
Overall confidence in the Euro-zone economy remains generally fragile with fears over the cyclical and structural outlook. GDP for the fourth quarter of 2008 was revised down to show a contraction of 1.6% from 1.5% previously. The Irish government was forced into an additional budget to tackle the severe fiscal deterioration which reinforced fears surrounding the weaker Euro-zone members. There will also be further speculation that the ECB could intervene to weaken the Euro.
Corporate fears increased with a larger than expected quarterly loss from Alcoa and further speculation that GM would enter bankruptcy.
It will still be difficult for the major currencies to make a decisive move given the underlying vulnerabilities in both economic areas. The Euro dipped to below 1.32 on Wednesday as risk appetite was still generally weaker.
Published on Wed, Apr 8 2009, 13:09 GMT
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Daily FX Commentary
Fri, Apr 3 2009, 11:47 GMT
US payrolls set to slump again
There is a strong probability that US employment will again fall very sharply for the latest month and the net risk suggests a slightly weaker than expected report, although there is no sense in looking to forecast the data. Although overall risk appetite remains firm following the G20 summit, there is likely to be some reassessment of the deal as there were no specific measures to deal with bad debts in the banking sector. Stock markets will also be vulnerable to a correction following sharp gains. In this context, the best strategy looks to be to sell into any Euro strength following the report.
The US labour-market data has remained extremely weak with ADP reporting a record 742,000 employment decline for March after a revised 706,000 drop previously. Initial jobless claims rose to a fresh 26-year high of 669,000 week from a revised 657,000. Continuing claims also rose to a fresh record high of 5.73mn in the latest week
Given this evidence there is every reason to expect a further very weak employment report on Friday. Before the horrendous decline in employment, payroll changes of around 20,000 away from consensus would ten to trigger a significant reaction, but the market has been desensitised to huge numbers
The unemployment rate will be watched closely as the impact of falling employment and discouraged workers leaving the workforce could trigger an erratic outcome.
Published on Fri, Apr 3 2009, 11:47 GMT
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Daily FX Commentary
Mon, Mar 30 2009, 15:36 GMT
Risk appetite dominates Australian dollar
The Australian dollar was unable to make a fresh challenge on resistance above the 0.70 level on Friday and weakened to the 0.69 region in US trading as the US currency gained ground and Wall Street came under pressure. The theme towards weaker risk appetite continued on Monday as Asian stock markets fell significantly and this pushed the Australian currency to lows just below the 0.68 level against the US currency. There will be further caution ahead of the Reserve Bank interest rate meeting this month, although international trends will tend to dominate for now.
International policy responses and co-operation will continue to be watched very closely ahead of the G20 meeting on Thursday. There will be further unease that no significant policy developments will be agreed while there will also be fears of major tensions as any serious disagreements would cause much more serious damage to market confidence. In this environment, risk appetite is liable to weaken slightly further which would tend to benefit the dollar and yen and undermine currencies such as the Australian currency.
Published on Mon, Mar 30 2009, 15:36 GMT
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Daily FX Commentary
Fri, Mar 27 2009, 14:42 GMT
Euro correction to continue
International policy responses and co-operation will be increasingly important next week ahead of the G20 meeting on Thursday. There will be strong efforts to promote a unified front, but there will certainly be underlying stresses and these tensions could spill over into public debate. In this environment, there is the potential for risk appetite to remain slightly weaker which would also tend to limit Euro support, especially if credit tensions fail to ease. The overall Euro correction is liable to extend towards 1.3150 against the dollar next week
The degrees of risk appetite remained an important feature and confidence was generally weaker during the day. This was most obvious in the fact that 1-month US Treasury bill yields fell below zero for the first time since December while credit spreads were also wider. Significantly, the Euro was unable to gain any significant support from Wall Street gains
The degrees of risk appetite remained an important feature and confidence was generally weaker during the day. This was most obvious in the fact that 1-month US Treasury bill yields fell below zero for the first time since December while credit spreads were also wider. Significantly, the Euro was unable to gain any significant support from Wall Street gains
The Euro was also undermined by the loss of support at the 1.34 area against the dollar in European trading on Friday. The Euro was also unsettled by additional speculation that the ECB will join other central banks and pursue a more open quantitative monetary policy while there will be strong expectations of another interest rate cut next week.
The dollar is still not in a good position to secure strong gains given the focus on underlying reserve management and the promotion of an alternative reserve currency.
Published on Fri, Mar 27 2009, 14:42 GMT
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Daily FX Commentary
Wed, Mar 25 2009, 15:40 GMT
Sterling on a tightrope
The UK inflation data released on Tuesday will tend to increase Bank of England caution over an even more aggressive monetary policy and any shift in policy stance towards the currency’s level may tend to support Sterling.
There will also, however, also be the risk a further deterioration in medium-term sentiment towards the economy with the possibility that Bank of England credibility will be damaged.
The central bank warned that the government should not boost fiscal policy significantly further in the forthcoming budget given the debt stresses and rapidly rising budget deficit. The warning will tend to undermine currency support given that fiscal fears are already an important factor in damaging sentiment.
Sterling peaked at a six-week peak near 1.4780 against the dollar before correcting weaker while it also appreciated to 0.9170 against the Euro. Sterling weakened back towards 1.46 against the dollar on Wednesday and also dipped to 0.9260 against the Euro.
The potential vulnerability was illustrated by the latest gilt auction as the bid/cover ration weakened to 0.93 from 2.03 at the previous auction. The very poor result will increase fears over structural vulnerability and weak capital inflows.
Published on Wed, Mar 25 2009, 15:40 GMT
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Daily FX Commentary
Fri, Mar 20 2009, 21:20 GMT
Pressure for ECB response
The comments from ECB officials will also remain under very close scrutiny in the short term. Following the Federal Reserve move to expand quantitative easing, there will be additional pressure on the ECB to also adopt non-conventional policy moves or cut interest rates even more aggressively.
There is still likely to be very strong resistance to such moves from many members of the bank council, especially given the bank’s historic aversion to any policies which could risk an increase in medium-term inflation.
The ECB comments are liable to trigger further volatility given the importance of direct credit measures for currency sentiment. If the ECB holds firm, then the Euro should maintain a robust tone in the short term.
The Euro consolidated around 1.3650 against the dollar on Friday before retreating to 1.3550. Trends in risk appetite will also need to be watched closely and the Euro’s correction will gather pace if there is renewed downward pressure on global stock market sand renewed fears over the banking sector.
Published on Fri, Mar 20 2009, 21:20 GMT
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Daily FX Commentary
Wed, Mar 18 2009, 14:36 GMT
Jobless surge undermines Sterling
The UK economic data was very weak on Wednesday with the unemployment claimant count rising by 138,400 for February after a revised 93,500 increase for January. This was the biggest monthly increase for at least 30 years with the unemployment total at a 10-year high while annual earnings growth weakened sharply to 1.8% from 3.1%.
According to the March minutes, the Bank of England voted 9-0 for the 0.50% cut in interest rates while there was also unanimous approval for the decision to adopt quantitative easing.
The unemployment data will increase fears over the economy and will ensure that the central bank continues to provide a strong stimulus to the economy. The IMF also warned that the UK economy would fare worse than the US and Euro-zone with a further small GDP contraction for 2009 following a decline of near 4.0% for 2009.
Sterling weakened to lows just below 1.3850 against the dollar and 0.9420 against the Euro following the dismal data before consolidating.
Sterling should still gain some protection in relative terms given that the near-term outlook throughout the G7 area remains bleak.
Published on Wed, Mar 18 2009, 14:36 GMT
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Daily FX Commentary
Mon, Mar 16 2009, 13:57 GMT
Sterling advance set to stall
In its quarterly report, the Bank of England warned that many households could face a debt and deflation trap. The comments will reinforce expectations that the central bank will push ahead with an aggressive quantitative easing policy.
The international perspective will also remain very important for the UK currency. There will be increased speculation that the US Federal Reserve will move towards buying government bonds and there will be increased pressure for the ECB to take more aggressive and non-standard policy action.
The Bank of England quantitative easing will still be an important risk threat to Sterling, but any additional moves by other G7 banks would certainly limit the UK currency risks.
Sterling found support below the 1.39 level against the dollar on Monday and then rallied sharply to highs above 1.42 while it also made ground against the Euro. Near-term moves will remain correlated strongly with degrees of risk appetite
The latest UK unemployment data will be watched closely this week. If the labour market does not appear to be deteriorating any faster than in other major economies then Sterling may continue to gain some support. In contrast, any monthly increase above 100,000 would tend to undermine the currency.
Published on Mon, Mar 16 2009, 13:57 GMT
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Daily FX Commentary
Fri, Mar 13 2009, 12:38 GMT
Measured Euro correction
Finance Ministers and central bank officials from the G20 countries will meet this weekend in an attempt to form common policy objectives ahead of the main summit which is due at the beginning of April.
Two policy areas will be very important with officials likely to make progress on plans for more effective reform for the global banking sector
The UK is also likely to push for a further concerted fiscal stimulus in an attempt to help strengthen the global economy. There is, however, evidence that the German and French officials will oppose the suggestions and this is liable to create friction. The disagreements should be contained at this stage and the risks of a slanging match look low which should avoid any serious market destabilisation. In this environment, risk appetite is liable to be slightly weaker at the beginning of next week
Following the Swiss National Bank decision to intervene and weaken the Swiss currency, there will be additional pressure for more dynamic ECB action to help underpin the economy and there will also be increased speculation that the bank will move towards a policy of quantitative easing and this will limit Euro selling pressure.
Published on Fri, Mar 13 2009, 12:38 GMT
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Daily FX Commentary
Thu, Mar 12 2009, 13:16 GMT
SNB to weaken franc
The franc was also unable to make headway against the Euro on Wednesday and weakened to lows beyond 1.48 before a correction as there were rumours that the interest rate decision had been leaked.
The National Bank quarterly policy meeting will still be an important focus on Thursday, especially with strong pressure for further action to support the economy and speculation over non-conventional measures such as quantitative easing.
The most likely outcome is that there will be a further 0.25% cut in rates to a target rate of 0.25% and such an outcome should be in the price which will limit the impact.
Any move towards quantitative easing would also be negative for franc sentiment while the franc will gain support if there is a move to resist an immediate move for quantitative easing.
The bank comments on franc strength will be closely watched as they have been vocal in warning over potential intervention over the past few weeks. There are liable to be further warnings against currency strength from the bank officials which will severely contain the potential for Swiss currency gains while any actual intervention would weaken it sharply. The franc pushed back to 1.15 against the dollar on Thursday, before consolidation around 1.1560.
Published on Thu, Mar 12 2009, 13:16 GMT
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Daily FX Commentary
Mon, Mar 9 2009, 14:19 GMT
Sterling under pressure
Sterling found support below 1.42 against the dollar in Europe on Friday and pushed to a high just above 1.43 following the US data. The UK currency was unable to sustain the gains and weakened sharply back to 1.41 later in US trading while Sterling also dipped to test levels near 0.90 against the Euro.
Following sharp losses on Thursday, the UK stock market attempted to rally on Friday, but gains stalled quickly which limited Sterling support, especially as there was renewed downward pressure on the financial sector. There were also underlying fears over the impact of quantitative easing on the medium-term currency outlook with reduced yield support for gilts.
The Lloyds banking group confirmed that the government would have a 65% stake following the new loan guarantee programme. The UK stock market was subjected to further pressure on Monday with financials again under pressure following the Lloyds announcement with the UK index at fresh 6-year lows.
Sterling initially held close to 1.41 on Monday as risk appetite remained very fragile and then weakened sharply again to test levels below 1.40 as yields on government bonds continued to decline with lows below 1.39.
Published on Mon, Mar 9 2009, 14:19 GMT
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Daily FX Commentary
Fri, Mar 6 2009, 12:49 GMT
Dollar loses support
The Euro was unable to hold above the 1.26 level ahead of the European interest rate decisions on Thursday and weakened back towards 1.2550. As expected, the ECB cut interest rates by a further 0.50% to a record low 1.50% at the latest council meeting. There was a sharp downgrading of economic prospects in the updated staff projections with the economy expected to contract between 2.2% and 3.2% for 2009
The US jobless claims data was slightly lower than expected with a decline in initial claims to 639,000 in the latest week from a revised 670,000 previously and this will maintain some hopes that the Friday payroll data may not match the most pessimistic expectations. The factory orders data was also slightly stronger than expected, but the underling stresses were illustrated by the fact that mortgage delinquencies rose to record highs near 8% in the fourth quarter of 2008.
The dollar is liable to lose some ground against the Euro if the Friday data is better than expected while increased fear would underpin the US currency. The Euro pushed back to near 1.27 on Friday with the US currency finding it more difficult to gain defensive support following a warning over possible bankruptcy by GM and continuing fears over the banking sector.
Published on Fri, Mar 6 2009, 12:49 GMT
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Daily FX Commentary
Tue, Mar 3 2009, 13:50 GMT
Construction data undermines Sterling
The UK mortgage and net lending data was also weak with mortgage January lending only 10% of the levels seen in the same month for 2008, illustrating the lack of credit availability
There will also be additional pressure on the Bank of England to announce quantitative easing at this week’s monetary meeting. The final figures from January recorded a monthly increase in M4 money supply of 2.5% for with a 17.5% annual increase, the highest annual increase since 1990.
The rate of expansion will increase the Sterling risk of any move to quantitative easing. As Wall Street weakened, Sterling dipped to six-week lows below 1.40 against the dollar, but found some support below this level and recovered back to above 1.41 on Tuesday as the dollar retreated from its best levels.
Sterling retreated back towards 1.40 later in Europe as the UK data remained very weak. The construction PMI index weakening to a record low of 27.4 in February from 34.5 previously which will increase fears over the construction sector.
Published on Tue, Mar 3 2009, 13:50 GMT
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Daily FX Commentary
Mon, Mar 2 2009, 14:55 GMT
Defensive dollar support
The US data releases maintained the weak tone seen over the past week. The main focus was on the GDP data with contraction for the fourth quarter revised up to an annualised rate of 6.2% from the provisional 3.8%. Inventories were revised down and consumer spending fell more substantially and risk appetite deteriorated again after the data.
The Chicago PMI index edged slightly higher to 34.2 in February from 33.3 the previous month while the employment index weakened further. The revised University of Michigan confidence index was little changed at 56.3 for February and confidence in the economy will remain weak.
The Administration formally announced the support package for Citigroup with the authorities taking a bigger stake in the bank. There was an unfavourable reaction from the markets which triggered a fresh increase in risk aversion and this also provided some dollar support against European currencies. The Euro tested levels close to 1.26 before a recovery with the dollar trade-weighted index close to a three-year high.
The Euro weakened again in Asian trading on Monday with signs of tensions between European Union leaders. The dollar was also boosted by a fresh increase in risk aversion following a new US$30bn support package for insurance group AIG and further downward pressure on equity markets.
Published on Mon, Mar 2 2009, 14:55 GMT
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Daily FX Commentary
Fri, Feb 27 2009, 12:24 GMT
Limited yen correction
As yen sentiment remained substantially weaker, the yen came under further pressure in US trading on Thursday with the dollar pushing to a high above 98.50 before a partial retreat.
The Japanese data remained grim with industrial production falling by a record 10% for January following a 9.8% decline the previous month as industry remained under severe pressure. Core consumer prices were unchanged over the year while household spending fell 5.9% over the year.
Although extremely weak, the data was no worse than expected and the yen avoided further selling pressure following the data. There was also evidence of month-end dollar selling which helped trigger a partial yen correction and the Japanese currency is still over-sold technically after recent heavy losses.
Underlying confidence is still liable to be weak in the short term with the yen still finding it much more difficult to secure any defensive support with the dollar consolidating below 98 in early Europe on Friday.
Published on Fri, Feb 27 2009, 12:24 GMT
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Daily FX Commentary
Thu, Feb 26 2009, 13:23 GMT
Banks continue to dominate Sterling
Sterling was unable to break above 1.46 against the dollar during Wednesday and weakened sharply during the day with a low below 1.42. Sterling also retreated to beyond 0.89 against the Euro.
Comments from Bank of England officials were generally downbeat with Blanchflower warning over the risk of a protracted recession and worsening conditions. There were also renewed fears over the banking sector as the government prepared to launch a bank stabilisation plan with the expectations of a huge public debt burden an underlying negative factor for the currency.
Sterling was trapped close to 1.42 in early Europe on Thursday as the Nationwide reported a further 1.8% decline in house prices for February. The Royal Bank of Scotland posted losses of over GBP25bn, although confidence was supported to some extent by the plans to place bad loans in a government-supported insurance scheme which will help stabilise the sector in the near term.
Bank of England Governor King stated that the bank had been powerless to avert the banking crisis
Published on Thu, Feb 26 2009, 13:23 GMT
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Daily FX Commentary
Tue, Feb 24 2009, 13:20 GMT
CBI survey supports Sterling
Sterling continued to strengthen during Monday and pushed to highs above 1.4650 against the dollar during European trading before a retreat to below 1.45 as global stock markets weakened. It also strengthened through 0.88 against the Euro, pushing towards 2009 Euro lows seen earlier in February. The UK currency continued to gain some support from hopes that some degree of confidence in the banking sector could be restored
Any tentative move towards a more stable financial sector would tend to be a positive factor for the UK currency, but sentiment is liable to fluctuate sharply. The domestic and international financial-market trends will continue to have a key influence with Sterling near 1.45 against the dollar on Tuesday.
The BBA mortgage loan data recorded a small monthly increase for January, although there was still an annual decline of over 40% while the rate of retail sales decline also slowed according to the latest CBI monthly survey. The data will increase speculation that the rate of GDP decline is easing.
Published on Tue, Feb 24 2009, 13:20 GMT
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Daily FX Commentary
Mon, Feb 23 2009, 14:52 GMT
Yen remains under pressure
The dollar was again blocked near the 94.50 resistance level on Friday with breakout attempts undermined by stresses within the financial sector and Wall Street weakness with the US currency weakening sharply to lows below 93 later in US trading.
Confidence in the Japanese economy is continuing to weaken with the bankruptcy of credit supplier SFCG increasing fears that there will be further major difficulties in the financial sector which would put further downward pressure on credit supply and also further undermine the economy. There has also been unease over the latest trade data which is due later this week. Fears over the economy were illustrated by another 25-year low for the broad Topix share index on Monday
In this context, the yen is again finding it more difficult to gain safe-haven support and it held close to 93 against the weaker dollar while the Japanese currency weakened to a 5-week low against the Euro. Subsequently, the dollar pushed above 94 as the dollar again challenged resistance levels.
Published on Mon, Feb 23 2009, 14:52 GMT
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Daily FX Commentary
Fri, Feb 20 2009, 13:14 GMT
Euro and dollar both struggle
After resisting a further test of support close to 1.25 against the dollar on Thursday the Euro strengthened significantly over the day. The Euro was underpinned by speculation that the German government would pledge support for Eastern European economies. It may prove more difficult to secure durable support, especially with the German economy still contracting.
The US industrial survey data remained depressed with the Philadelphia Fed index weakening sharply to -41.3 from -24.3 in January and this was the weakest headline reading since 1990. All the current components were depressed, although the improvement in the six-month outlook index will provide some slight optimism over second-half prospects. Leading indicators also strengthened for the second successive month.
The labour-market data remained extremely weak with initial claims at 627,000, unchanged from the revised level the previous week, and remaining at the highest level since 1980. Continuing claims also pushed to the highest level since at least 1970, reinforcing the very severe stresses in the economy. The Euro pushed to a high around 1.2760, but was unable to sustain a move above the previous support level around 1.2730 and edged lower later in US trading as The Dow Jones index tested November lows. As confidence remained fragile, the Euro weakened back to below 1.26 in Europe on Friday.
Published on Fri, Feb 20 2009, 13:14 GMT
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Daily FX Commentary
Wed, Feb 18 2009, 12:54 GMT
Pressure for additional BOJ action
The dollar found support below the 92 area against the yen on Tuesday despite general weakness in global equity markets. There will be a further suspicion of covert official intervention through Japanese funds to undermine the yen, especially as it failed to gain any significant support from the initial decline on Wall Street.
There was a similar pattern in Asia on Wednesday with the Japanese currency struggling to gain any support from fragile risk appetite. The domestic stresses were illustrated by moves in the debt default swaps with the cost of protecting against a Japanese default on government debt at a record high as budget pressures increase and the economy remains in difficulties.
There will still be some expectations of capital repatriation to Japan ahead of the fiscal year end which will provide some protection for the yen. The dollar was holding just below 92.50 in early Europe on Wednesday. There will be pressure on the Bank of Japan to announce further monetary support measures on Thursday which would tend to undermine the yen.
Published on Wed, Feb 18 2009, 12:54 GMT
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Daily FX Commentary
Mon, Feb 16 2009, 20:34 GMT
Regional fears undermine Euro
The Euro was unable to push above the 1.2950 region on Friday, but resisted a renewed decline below 1.28 as trading ranges were slightly narrower. The Russian rouble maintained a firmer tone which provided some Euro support over the day.
Euro-zone GDP fell 1.5% for the fourth quarter which was a record quarterly decline. The data will reinforce fears over the Euro-zone economy and there will be pressure for additional policy action. There will be further very strong expectations that the ECB will sanction a further significant interest rate cut at the March meeting.
The G7 meetings failed to announce any new significant policy measures with more general comments on the need to tackle the severe downturn. The lack of policy initiatives had some impact in weakening the Euro in Asian trading on Monday. The Euro was also unsettled to some extent by fresh rumours of difficulties in Eastern Europe and a possible downgrading of Ukraine’s debt rating while there was also some speculation over an Irish debt default. The Euro dipped towards important support levels just above to 1.27 in Europe before a slight recovery.
Published on Mon, Feb 16 2009, 20:34 GMT
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Daily FX Commentary
Fri, Feb 13 2009, 14:39 GMT
G7 meetings in focus
The dollar found support below 90 on Thursday with reports that the Japanese postal fund was buying on the approach to 89.80. The US currency then pushed back to near 91 in New York as Wall Street rallied with the yen also losing ground on the crosses.
The yen retained a weaker tone on Friday with some optimism over official action to support the US and global economy. Regional equity markets rallied after three days of losses and this curbed yen demand. The Bank of Japan pledged that credit-market support measures would be extended for a further six months.
The G7 meetings will be watched closely on Friday and over the weekend and a constructive tone on the need for further measures to support the global economy would tend to underpin risk appetite which would also lessen yen demand.
In contrast, tensions over Asian exchange rate policies and aggressive rhetoric calling for a stronger Chinese yuan would tend to push the yen stronger early next week. Position adjustment will be a feature on Friday which will tend to trigger additional volatility.
Published on Fri, Feb 13 2009, 14:39 GMT
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Daily FX Commentary
Wed, Feb 11 2009, 11:50 GMT
US plans fail to convince
The dollar weakened back to lows beyond the 1.30 level in New York on Tuesday with hopes that there would be positive US developments. As policy action dominated, the economic data did not have a significant impact. Risk appetite was initially supported by the Senate’s approval of a fiscal stimulus plan, although it differs significantly from the House version and a compromise version will be required.US Treasury Secretary Geithner announced the new Financial Stability Plan to support the US banking and wider financial sector. There will be further support of the banks through asset purchases while the Treasury will look to boost consumer credit. There was a lack of specific details which unsettled Wall Street and pushed the Dow Jones index down sharply with markets also uneasy over the plans for direct lending with potential support of over US$1.5trn.
As risk appetite faded, the familiar currency-market trading pattern emerged. The strengthened to around 1.29 before losing some ground on Wednesday
Published on Wed, Feb 11 2009, 11:50 GMT
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Pressure for US fiscal action
Mon, Feb 9 2009, 12:52 GMT
by Tim Clayton
The Euro dipped to lows near the 1.2740 region in early Europe on Friday, but found support close to this region and consolidated near to 1.28 ahead of the US data.
The US labour-market data remained very weak again with a 598,000 decline in employment for January following a 577,000 decline for December and this was the sharpest monthly decline for 34 years. Manufacturing employment was notably weak with a 200,000 monthly decline. The unemployment rate also continued to rise strongly to 7.6% from 7.2% previously. The labour-force survey pointed to extreme conditions with a reported employment decline of over 2 million for the month. The very weak employment data will increase demands for urgent supportive action.
Wall Street rallied on expectations that the pressure for action would lessen barriers to the fiscal stimulus plan. The Euro gained from an improvement in risk appetite and a surge in debt issuance, with a peak close to the 1.30 level. The Euro retreated towards the 1.29 region on Monday in choppy trading as markets continued to focus on congressional negotiations over the stimulus and the Administration’s financial reform plans.
Published on Mon, Feb 9 2009, 12:52 GMT
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Sterling recovery to fade
Fri, Feb 6 2009, 11:53 GMT
by Tim Clayton
The Bank of England cut interest rates by a further 0.50% to 1.00% at the latest MPC meeting, in line with market expectations, and took rates down to a fresh record low.
In the statement following the decision, the bank referred to the risks of inflation substantially undershooting the 2.0% target while the outlook for consumer spending was weak and the global economy faced a major slowdown. The bank, however, also pointed to the stimulatory effect of substantial rate cuts while warning that Sterling weakness would boost import costs
Markets will not be confident that rates have reached their lowest point, but there will be speculation over a period of stability. The UK currency also gained some support from an improvement in risk appetite. Sterling pushed to a high around 1.47 against the dollar and 0.8730 against the Euro later in the US session before edging lower on Friday.
UK industrial production fell 1.7% in December after a revised 2.5% decline the previous month, maintaining fears over the economy although the impact should be limited.
Published on Fri, Feb 6 2009, 11:53 GMT
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Downside Euro protection
Tue, Feb 3 2009, 12:41 GMT
by Tim Clayton
Risk appetite remained generally weaker on Monday while the European economic data did little to support confidence. Any comments from ECB officials will remain extremely important ahead of Thursdays council meeting. Following January’s meeting, Chairman Trichet suggested that rates would be left on hold in February with the council waiting for fresh staff projections which will be available in March.
Since then, there has been additional pressure for rates to be cut again and any comments over the next 48 hours could provide important hints over the likely policy stance this week.
The Euro will continue to be unsettled by structural fears as markets debate the possibility of any Euro-zone economy abandoning the Euro. Fears over further credit-rating downgrades will also tend to be damaging for the currency.
Risk conditions improved to some extent during US trading with a degree of relief over the data and this allowed the Euro to recover back above the 1.28 level. The dollar remained slightly weaker on Tuesday, although the Euro was again unable to break above resistance in the 1.29 region as German retail sales fell
Published on Tue, Feb 3 2009, 12:41 GMT
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Daily FX Commentary
Mon, Feb 2 2009, 12:56 GMT
RBA decision key for Australian dollar
The Australian dollar was unable to gain any traction on Friday and weakened to lows near the 0.63 region against the US dollar as global economic fears continued to increase.
Australian house prices and sales continued to decline according to the latest domestic data with new home sales declining by 1.7% in December after a revised 4.1% decline the previous month. Although the direct impact was limited, there were expectations that the Reserve Bank would cut interest rates more aggressively at this week's policy meeting.
The Australian currency was again undermined by a general deterioration in risk appetite on Monday as global growth fears intensified. In particular, confidence in Asian prospects has continued to weaken. Markets are expecting Australian interest rates to be cut by 1.00% at the latest policy meeting. Confidence will remain very fragile in the short term, especially if there is a depressed reading for the US ISM manufacturing report.
Published on Mon, Feb 2 2009, 12:56 GMT
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Daily FX Commentary
Fri, Jan 30 2009, 11:42 GMT
GDP to trigger fresh dollar volatility
The Euro was again undermined in part by Russian rouble weakness on Thursday while defensive dollar demand also increased again. The US new home sales data was much weaker than expected with a decline to an annual rate of 331,000 in December from a downwardly-revised 388,000 the previous month. This was the sharpest monthly decline for over 60 years while the annual rate was the lowest since the series began in 1963. Inventories also rose sharply which will undermine near-term activity.
The other US data offered no relief with jobless claims rising to 588,000 in the latest week from 585,000 previously while continuing claims were at a record high. Durable goods orders fell by 2.6% for December with an underlying 3.6% decline. Following the spark of optimism following the existing home sales data, there were renewed fears over the depth and duration of the downturn with a very weak fourth-quarter GDP report expected on Friday.
The weak housing data will increase pressure for even more aggressive fiscal action to support the economy. Risk appetite remained weaker on Friday and the dollar strengthened to a peak near 1.2840
Published on Fri, Jan 30 2009, 11:42 GMT
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Daily FX Commentary
Wed, Jan 28 2009, 13:43 GMT
US financing will be critical issue
The Euro regained the 1.32 level on Tuesday and pushed higher following the European data with a peak above 1.33 as risk appetite remained slightly higher.
US consumer confidence weakened slightly further to a record low of 37.7 in January from 38.0 the previous month. The decline at a time of lower energy prices and a new Administration will reinforce fears that consumer spending will remain at weak levels over the next few months. The Richmond Fed index moved slightly higher, but remained at depressed levels
The currency moves were still influenced strongly by the degrees of risk appetite and the dollar regained some ground as confidence faltered.
The Euro edged firmer on Wednesday with hopes that the Federal Reserve would announce further measures to support the economy at the Wednesday FOMC meeting. There were also expectations that the Administration would expand the fiscal stimulus package and draw bad debts out of the banking sector. There was resistance above the 1.33 level.
Published on Wed, Jan 28 2009, 13:43 GMT
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Banks lead Sterling volatility
Mon, Jan 26 2009, 14:50 GMT
by Tim Clayton
Sterling remained under pressure on Friday and weakened to a fresh 23-year low near 1.35 against the dollar. Sterling also dipped to three-week lows around 0.9470 against the Euro following the UK data. Overall confidence in the economy will remain extremely weak in the short term, especially with budget fears increasing.
There will still be some scope for a correction from over-sold conditions, especially after a weekly decline against the dollar of close to 8% and Sterling recovered back to near 1.38 later in US trading.
Given the lack of confidence, rallies quickly attract selling pressure and Sterling retreated again towards 23-year lows on Monday with a test of support below the 1.36 level in early Europe. These was a rebound to above 1.38 later in European trading as UK banking shares rallied sharply following a public trading statement from Barclays
Published on Mon, Jan 26 2009, 14:50 GMT
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Dollar confrontation looms
Fri, Jan 23 2009, 11:57 GMT
by Tim Clayton
The US economic data maintained a very weak tone as jobless claims increased to 589,000 in the latest week from 527,000 previously. The move back towards 26-year highs seen in December will maintain fears over the labour market. Housing starts and permits also weakened further to a fresh 50-year low with an annualised rate of 0.55mn for December.
The comments on currencies will continue to be watched very closely in the short term. In congressional testimony, Treasury Secretary nominee Geithner stated in written evidence that a strong dollar is in the national interest. Nevertheless, he also stated that President Obama believes that China is a currency manipulator and called for a realignment of currencies.
These comments will tend to unsettle underlying confidence in US assets and the dollar given the possibility of increased tensions with China and fears that Asian central banks could curb US Treasury buying.
Bond markets will therefore also be monitored closely as any further increase in yields would tend to put further downward pressure on the housing sector which would also maintain a lack of confidence in the wider economy.
The lack of financial confidence remained the dominate feature on Friday with the dollar pushing back towards 1.29 on Friday and the Euro subsequently weakened to below 1.28 despite slightly stronger than expected Euro-zone PMI data.
Published on Fri, Jan 23 2009, 11:57 GMT
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Risk appetite dominates
Fri, Jan 16 2009, 11:56 GMT
by Tim Clayton
During Thursday, there was further speculation that the Bank of America and Citigroup would require additional financial support to survive. Although these stresses provided some defensive dollar support, fears over the US financial sector will be a longer-term negative dollar factor. From highs near 1.3025, the dollar weakened back to 1.3140.
In Asian trading on Friday, risk appetite improved further following news that the Bank of America would receive an additional US$20bn in equity from the US Treasury to help offset losses from Merrill Lynch. Regional equity markets rallied which curbed yen demand. The Euro strengthened back to 1.3250 against the dollar and probed levels above 120 against the yen as defensive support for the yen and dollar eased.
Both bank of America and Citigroup reported worse than expected results for the fourth quarter on Friday which dampened the mood of improved confidence to some extent.
Published on Fri, Jan 16 2009, 11:56 GMT
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Trichet critical for Euro
Thu, Jan 15 2009, 12:56 GMT
by Tim Clayton
The Euro briefly pushed back above 1.33 against the dollar on Wednesday, but was then subjected to renewed selling and dipped to lows below 1.31 before rallying. The currency again struggled to gain support ahead of Thursday’s ECB meeting with expectations that the bank would sanction a further rate cut of at least 0.50% to 2.00%.
Confidence in Europe was also undermined by larger than expected fourth-quarter losses by Deutsche Bank. The Euro was, however, damaged more by structural concerns than yield considerations. The currency dipped sharply after reports that the Irish government could seek IMF support. This was denied by the Irish government, but sentiment remained very fragile and there was further selling pressure when the Greek credit rating was downgraded by Standard & Poor’s.
The ECB cut interest rates by 0.50% to 2.00%. The comments from ECB Chairman Trichet will be very important for sentiment surrounding the Euro. A dovish stance and fears over the economy would unsettle the Euro while a concentration on medium-term stability would offer some Euro support
Published on Thu, Jan 15 2009, 12:56 GMT
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Sterling support fades
Tue, Jan 13 2009, 14:45 GMT
by Tim Clayton
Sterling was unable to sustain Friday’s gains against the Euro and weakened back to lows beyond the 0.90 level. Sterling also failed to hold above 1.50 against the dollar and dipped to lows around 1.4810 in US trading.
The UK currency was subjected to a correction after gains last week while the currency was unsettled by the decline in risk appetite as underlying confidence remained very fragile. There were continuing announcements of substantial job losses which offset the impact of government plans to support the labour market.
The retail sales evidence remained weak with the BRC report recording an annual like-for-like sales decline of 3.3% for December which will reinforce consumer spending fears while there was a very weak BCC survey on economic trends. Sterling should still gain some support from the major difficulties seen in other global economies.
The UK November trade deficit for goods rose to a record GBP8.3bn from GBP7.6bn the previous month as non-EU exports declined and this will further undermine confidence in the economy with fears that the improved competitiveness will not have a major beneficial impact. Sterling pushing to lows below 1.46 against the dollar.
Published on Tue, Jan 13 2009, 14:45 GMT
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Dollar braced for payroll report
Fri, Jan 9 2009, 11:50 GMT
by Tim Clayton
The Euro found support below the 1.3550 level inn Europe on Thursday and recovered to the 1.36 region ahead of the US open. US initial jobless claims were sharply lower than expected for the second consecutive week at 467,000 from 491,000 previously, but there were suspicions that the data had again been distorted by seasonal influences surrounding the New Year holiday. This impression was reinforced by the fact that continuing claims rose further to a fresh 26-year high.
Economic fears were reinforced by weaker than expected sales data from Wal-Mart and there was major unease over the Friday payroll data. President-elect Obama provided some details of proposed tax measures, but this failed to have a significant impact following the recent comments that the deficit is liable to exceed US$1trn.
The Euro pushed to a high of 1.38 after the US data before retreating to 1.37 and edged weaker on Friday in choppy trading conditions. The Euro found support below 1.3650 and gained after a slightly stronger than expected Euro-zone retail sales report.
Published on Fri, Jan 9 2009, 11:50 GMT
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FOMC fears undermine dollar
Wed, Jan 7 2009, 13:42 GMT
by Tim Clayton
The Euro was unable to advance in early Europe on Tuesday and then weakened sharply for the second successive day with lows close to the 1.33 level.
The US ISM index for the services sector was slightly stronger than expected with a rise to 40.6 in December from 37.3 the previous month and in contrast to expectations of a further small decline, although there will be some fears that it reflected seasonal factors rather any underlying improvement. Elsewhere, pending home sales fell 4.0% in November after a revised 4.2% decline the previous month which reinforced fears over the housing sector.
The FOMC minutes from December’s policy meeting were notably downbeat. Members saw substantial downside risks to the economy with GDP set to contract for 2009 while some favoured quantitative reserve requirements and saw a risk of uncomfortably low inflation. The minutes will reinforce expectations of a highly expansionary Fed policy this year.
An important focus will continue to be on the prospects for a further aggressive fiscal package by the incoming administration. The potential for substantial tax cuts and spending boost will maintain some optimism that the economy can be revived. There will, however, also be serious concerns over the financing implications and the risk of an exodus from Treasury bonds which could also trigger substantial pressure on the dollar. The US currency weakened back to around the 1.35 region against the Euro following Fed minutes with further losses to 1.36 on Wednesday.
Published on Wed, Jan 7 2009, 13:42 GMT
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0
Risk appetite weakens yen
Mon, Jan 5 2009, 11:38 GMT
by Tim Clayton
The yen trend was little changed over much of the European session on Friday with the US currency edging higher while the Japanese currency initially resisted further selling pressure on the crosses.
As Wall Street gained ground, the yen became more vulnerable and dollar strengthened to a high above 92.20 with gains accelerating after the 30-day moving average resistance level around 91.85 was broken.
Domestically, the Nikkei gained ground on Monday which supported risk appetite. Bank of Japan Governor Shirakawa also noted that the bank would look for measures to curb yen strength. This combination will maintain some yen vulnerability, although trading conditions are liable to be erratic. The dollar was holding close to the 92 level in early Europe on Monday before pushing sharply higher to above 93.
Published on Mon, Jan 5 2009, 11:38 GMT
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Daily FX Commentary
Fri, Jan 2 2009, 11:35 GMT
Sterling volatility
Sterling found support close to the 0.98 level against the Euro on Wednesday and secured sharp gains over the day with a peak below 0.95. The UK currency also pushed to a high near 1.47 against the dollar, but was subjected to very heavy volatility in US trading as positioning dominated markets and Sterling failed to hold the best levels.
The UK currency retained a firmer tone against the Euro on Friday, although it was unable to sustain a move above the 1.47 level against the dollar and dipped back towards 1.45.
The PMI index for the manufacturing sector edged higher to 34.9 from 34.5 previously which was above expectations, but mortgage approvals were weaker than expected at multi-year lows. The latest Bank of England credit conditions survey also reported a further tightening in lending standards which will maintain pressure for further Bank of England interest rate cuts.
Published on Fri, Jan 2 2009, 11:35 GMT
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Daily FX Commentary
Mon, Dec 29 2008, 11:45 GMT
Sterling remains under pressure
Sterling remained fragile ahead of the Christmas holiday and was unable to secure any respite while UK markets were closed as it dipped to fresh record lows against the Euro.
Overall sentiment towards the economy and currency will remain very weak in the short term with continuing speculation that the Bank of England will be forced to cut interest rates again in January. Markets will continue to look to push Sterling weaker over the holiday period, although volatility is liable to remain elevated. Evidence on retail spending trends will continue to be watched closely over the next few days.
The very weak global outlook should offer some underlying protection to the currency, although the near-term focus will still be on pushing the currency towards parity against the Euro. The UK currency was weaker than 0.96 against the single currency in early Europe on Monday with volatility liable to increase.
The latest data recorded a further net decline in equity release from the housing sector of GBP5.7bn in the third quarter from -GBP2.0bn the previous quarter which illustrates that there will be reduced funds for consumer spending which will curb Sterling support.
Published on Mon, Dec 29 2008, 11:45 GMT
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0
Daily FX Commentary
Wed, Dec 24 2008, 12:09 GMT
Underlying dollar vulnerability
The Euro probed resistance levels above 1.40 against the dollar on Tuesday, but was unable to sustain the advance and drifted below this level for most of the day as there was some dollar demand on positioning grounds.
The US economic data remained weak with no suggestion at this stage of any recovery in conditions. Existing home sales fell to an annual rate of 4.49mn in November from a revised 4.91mn the previous month while new home sales also continued to weaken. There was also a reported increase in inventories and decline in prices which will curb any hopes of a near-term recovery.
The Richmond Fed manufacturing index also fell sharply again with a reading of -55 in December from -38 previously There is no doubt that there will be a very steep GDP decline for the fourth quarter and there will be speculation that the decline could be as much as 5.0%. Liquidity will be at sharply reduced levels and the US data on Wednesday could, therefore, trigger additional volatility, especially with underlying auto-sector fears also sapping confidence.
ECB Chairman Trichet was very cautious over economic prospects, although he also warned that the massive efforts made by banks and governments should be taken into account. The Euro consolidated around 1.3960 later in New York as trading volumes declined and was holding below 1.40 in early Europe on Wednesday.
Published on Wed, Dec 24 2008, 12:09 GMT
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Daily FX Commentary
Tue, Dec 23 2008, 12:50 GMT
Fragile Sterling correction
Sterling was unable to push back above the 1.50 level against the dollar on Monday and dipped to lows below 1.47 level the UK currency also re-tested record lows beyond 0.95 against the Euro. Confidence in the economy and Bank of England will remain weaker in the short term. Bank Deputy Governor Gieve, for example, stated that the bank was aware of the dangers posed by excessive bank credit, but did not take any additional action to curb excess borrowing.
Liquidity will weaken over the remainder of the year and this is liable to maintain erratic trading. There is the possibility of a paring of aggressive short positions which would trigger a correction for Sterling, but any rallies will quickly meet selling pressure given the severe lack of confidence in the currency.
GDP for the third quarter was revised down to a reading of -0.6% from the previous 0.5% and BBA mortgage approvals were weak at 17,800 in November which were at a record low and will reinforce fears over the economy, although the data suggested that the services sector rebounded in October. The current account deficit was lower than expected with a GBP7.7bn deficit after a revised GBP6.4bn shortfall the previous quarter which should also offer some relief.
Published on Tue, Dec 23 2008, 12:50 GMT
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Bank of Japan to take action
Thu, Dec 18 2008, 13:50 GMT
by Tim Clayton
As well as interest rates, markets will also remain on high alert over the possibility of intervention to support the US currency. There were stronger warnings over the yen on Thursday with the government stating that appropriate measures would be taken, although Finance Minister Nakagawa declined to comment on the situation.
The aggressive Fed move should also boost risk appetite as liquidity increases which would underpin carry trades and this should curb yen buying to some extent with the dollar holding close to 88 in Asian trading on Thursday. The yen dipped sharply against the Euro on rumours of Bank of Japan intervention as volatility increased.
Published on Thu, Dec 18 2008, 13:50 GMT
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Fed policies pose dollar risks
Tue, Dec 16 2008, 12:12 GMT
by Tim Clayton
Fed policies pose dollar risks
The Euro pushed higher in European trading on Monday and retained a firmer tone throughout the day as the dollar remained under some selling pressure. The US economic data failed to have a major impact, although it reinforced underlying fears.
The New York manufacturing PMI index edged lower to -25.8 in December from -25.4 previously which suggested that the industrial sector will remain under pressure while industrial production fell by 0.6% in November.
The latest capital flows report, recorded a decline in long-term inflows to US$1.5bn in October from US$65.4bn previously while the severe dislocation in markets following the Lehman collapse was illustrated by the US$286.3bn in total inflows.
Ahead of the FOMC interest rate decision on Tuesday, markets continued to expect a further rate reduction of 0.50% to 0.50%, while there has been further speculation that the Fed would look to maintain downward pressure on mortgage rates and could also buy Treasury bonds which would unsettle investors. There was evidence of a decline in demand for the US currency as the 3-month Libor rate continued the decline seen over the past week with a fall to 1.87% at the latest fixing.
The dollar corrected stronger in European on Tuesday with a move to 1.3650.
Published on Tue, Dec 16 2008, 12:12 GMT
7
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Daily FX Commentary
Fri, Dec 12 2008, 16:43 GMT
US fears will continue
The US data continued to give cause for concern with initial jobless claims rising to 573,000 in the latest week from a revised 515,000 previously. This was a 26-year high and continuing claims were also at a record high. Stresses within the labour market will maintain expectations that the Fed will cut interest rates again next week and also consider more radical, direct quantative policies to support the economy. The labour market will be a key focus given the auto-sector difficulties.
The dollar was certainly undermined to some extent by unease over US fundamentals with unease set to continue. Dollar Libor rates also eased to 2.0% which suggested that year-end funding pressures could be easing and that defensive dollar demand was also weaker, although caution will prevail.
Commodity prices also rallied with robust gains for gold and this helped propel the Euro to a seven-week high of 1.34 against the US currency. The dollar regained some defensive backing against the Euro on Friday as the support package for the auto sector failed in the Senate. Failure will also increase fears over the US economy, especially with another depressed retail sales reading. The dollar strengthened to near 1.3250 but failed to hold the gains and the Treasury indicated that the companies would not be allowed to fail.
Published on Fri, Dec 12 2008, 16:43 GMT
3
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Daily FX Commentary
Thu, Dec 11 2008, 11:38 GMT
Negative SNB outlook weakens franc
The Swiss currency found support on dips towards 1.21 against the dollar on Wednesday and strengthened through the 1.20 level as the US currency had a generally weaker tone. The franc also found some support weaker than the 1.56 level against the Euro.
At Thursday’s policy meting, the National Bank cut interest rates by 0.50% to a band of 0.0 - 1.0% with a central rate of 0.50% which was in line with market expectations.
The bank downgraded its outlook for 2009, forecasting that the economy would contract for the year, and it took a notably pessimistic stance towards the economy as a whole. The bank stated that it may have to consider alternative quantative measures to support the economy while the weakening of the franc was a deliberate policy.
In response to the bank’s comments, the franc weakened to beyond 1.57 against the Euro while the advance against the dollar stalled.
Published on Thu, Dec 11 2008, 11:38 GMT
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Sterling remains in trouble
Tue, Dec 9 2008, 12:08 GMT
by Tim Clayton
Sterling strengthened to a high above 1.50 in early Europe on Monday while the UK currency also regained the 0.86 level against the Euro, but it was unable to sustain the advance as confidence remained extremely weak.
Underlying confidence in the currency still remains extremely fragile on fears over underlying capital flows out of the UK. In this environment, Sterling weakened back to record lows beyond 0.87 against the Euro and also retreated to 1.48 against the dollar before rallying again as Wall Street rallied in choppy trading.
The latest BRC retail sales data recorded a 2.6% like-for-like sales decline in the year to November, maintaining the weak trend, although this figure was marginally firmer than expected. Markets will be more concerned over evidence on December sales trends, especially following the tax reductions. Sterling was below 1.48 again on Tuesday as the economic data remained weak. Industrial production fell by a further 1.7% in October to give a 5.2% year-on-year decline.
Published on Tue, Dec 9 2008, 12:08 GMT
6
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Daily FX Commentary
Fri, Dec 5 2008, 11:47 GMT
Markets braced for payroll slump
The Euro dipped to lows near 1.2550 against the dollar in Europe on Thursday before consolidating just above the 1.26 level ahead of the European interest rate decisions.
As far as the US data is concerned, there was some slight degree of relief in the latest initial jobless claims data with a decline to 509,000 in the latest week, although continuing claims was at a fresh 26-year high. Factory orders fell 5.1% in October, reinforcing pessimism over the industrial sector. There will be fears over a very sharp decline in employment in Friday’s monthly payroll report with the consensus for a decline of around 300,000. A steeper fall would reinforce fears over a deepening recession and increase pressure for a further fiscal stimulus package.
Fed Chairman Bernanke suggested that public funds could be used to help curb foreclosures. This announcement helped trigger dollar losses in US trading with the Euro testing levels above the 1.28 level before drifting weaker as Wall Street slipped.
The Euro was little changed on Friday in cautious markets ahead of the payroll report before weakening back to near 1.27
Published on Fri, Dec 5 2008, 11:47 GMT
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0
Big pressures on ECB
Thu, Dec 4 2008, 11:24 GMT
by Tim Clayton
The Euro failed to hold above 1.27 against the dollar in early Europe on Tuesday and dipped to lows near 1.26 as risk appetite deteriorated again. A late rally on Wall Street pushed the Euro back towards 1.27.
There was a 0.8% decline in Euro-zone retail sales for October, maintaining the run of weak data. The ECB will be an important focus on Thursday with markets pricing in a further interest rate cut of at least 0.50% with some speculation over an even bigger cut of at least 1.0%, especially after a 1.75% cut by the Swedish central bank.
As well as the rate decision, the comments from ECB Chairman Trichet will be very important for 2009 rate expectations. The markets will, to some extent, reward a pro-active stance by the ECB, although investors will also be looking for a measured underlying tone and volatility is liable to be high.
The Euro edged lower on Thursday ahead of the European rate decisions with a test of support below 1.26.
Published on Thu, Dec 4 2008, 11:24 GMT
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0
Speculation undermines Sterling
Wed, Dec 3 2008, 11:33 GMT
by Tim Clayton
Sterling remained under pressure on Tuesday, weakening to test support below the 1.48 level against the dollar while it also weakened to 0.8550 against the Euro.
In comments on Tuesday, former MPC member Buiter stated that the Bank of England could cut interest rates by 1.50% to 1.50% at this month’s policy meeting. Markets will certainly be expecting an aggressive cut in rates to help support the economy. There will, however, be calls for a more guarded approach, especially as Sterling has already weakened sharply over the past few months. Sentiment is likely to remain generally very fragile ahead of Thursday’s rate decision given the implications of reduced yield support with the UK currency also influenced strongly by degrees of risk aversion
The UK currency failed to hold above 1.50 and was unable to make any headway on Wednesday. As equity markets weakened, Sterling weakened to below 1.47. Further speculation over possible EMU entry at a depressed rate was again a negative factor for the currency. The Euro-zone, however, would be very unlikely to sanction entry at current levels and the losses are more a reflection of a general loss of confidence.
The economic data remained depressed with the services-sector PMI index weakening to a fresh all-time low of 40.1 for November from 42.4 the previous month.
Published on Wed, Dec 3 2008, 11:33 GMT
7
0
Daily FX Commentary
Mon, Dec 1 2008, 11:33 GMT
Sterling under renewed pressure
Sterling found support near 0.84 against the Euro on Friday and took advantage of general Euro weakness with gains to near 0.8250 in US trading. The UK currency was unable to make a fresh challenge on the 1.55 resistance level against the dollar.
The latest UK CBI distributive survey recorded a renewed deterioration with a reading of -46 for November from -27 the previous month while retailers were generally pessimistic over near-term prospects. The evidence will reinforce fears over the consumer spending outlook during the crucial December period and the threat of further company failures.
A further cut of at least 0.50% is certainly priced in which should limit Sterling selling, especially with the prospect of further US and Euro-zone cuts, but there is likely to be renewed speculation over a more aggressive MPC stance this week.
The UK data remained depressed with the PMI manufacturing index weakening to 34.4 for November from 40.7 previously. Consumer lending was also depressed for the month, maintaining pressure for a further sharp cut in interest rates and the data pushed Sterling back towards 1.50 against the dollar as risk appetite faded again.
Published on Mon, Dec 1 2008, 11:33 GMT
4
0
Daily FX Commentary
Fri, Nov 28 2008, 12:24 GMT
Global fears protect yen
The dollar consolidated near 95.40 on Thursday with a rise in European bourses having a small negative impact on the yen. There was subdued trading with the US market closure dampening activity.
The Japanese industrial data remained weak with a 3.1% decline in output for October and fears over the industrial sector are liable to intensify given the downturn in exports. There was also a decline in household spending while the consumer inflation rate slowed sharply. The unemployment rate fell to 3.7% from 4.0% the previous month, contrary to expectations of a rise, although this appeared to reflect discouraged workers leaving the workforce rather than firm demand for labour.
The Nikkei index moved higher on hopes for further action by China to support the regional economy and the dollar was able to find support close to the 95 level. Fears over the global economy will still provide some degree of yen support.
Published on Fri, Nov 28 2008, 12:24 GMT
0
0
Daily FX Commentary
Wed, Nov 26 2008, 14:53 GMT
Dollar outlook darkens
The Euro weakened back towards the 1.28 level in early US trading on Tuesday, but then secured renewed gains with a move to above 1.30 for the first time in three weeks as there was a reduction in underlying dollar demand.The Federal Reserve announced a further US$800bn support package for financial markets and the economy. In particular, the authorities want to narrow mortgage credit spreads which would lower interest rates and help underpin the housing sector. In this context, the Fed will buy US$600bn in mortgage-backed securities and spend a further US$200bn on supporting credit facilities in consumer-related sectors such as autos and student loans.
The action will maintain some degree of optimism over measures to support the economy and equity markets remained firm. There will, however, be serious longer-term fears over the budget outlook and a huge expansion of the Fed’s balance sheet will pose major risks to economic and currency stability.
Third-quarter US GDP was revised to show an annualised contraction of 0.5% from the previous -0.3% estimate as household spending fell sharply. The Case-Shiller house-price index also recorded a 17.4% decline in the year to September. The latest consumer confidence data was stronger than expected with a recovery to 44 in November from a revised 38.8 the previous month as energy prices fell sharply, although this is still at a historically depressed level.
Published on Wed, Nov 26 2008, 14:53 GMT
3
0
Sterling looks for relief
Fri, Nov 21 2008, 11:29 GMT
by Tim Clayton
The UK currency was unable to regain the 1.50 level against the dollar on Thursday and weakened to lows below 1.48. Sterling also weakened to lows beyond 0.8450 against the Euro as confidence remained extremely fragile.
There will still be strong expectations of a further Bank of England interest rate cut of at least 0.50% at the December meeting, especially with global central banks still looking to cut rates aggressively to alleviate the severe conditions. The strong downward trend in global rates and economic fears should provide some degree of relative protection to the UK currency.
Conditions within the financial sector will be watched very closely as the relative prospects across the major financial sectors will be an important determining factor exchange rates. Sterling will need firm evidence of stability in the banks to make significant headway. As global risks remained dominant, Sterling edged back towards 1.50 against the dollar on Friday.
Published on Fri, Nov 21 2008, 11:29 GMT
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0
Dollar dependent on defensive support
Wed, Nov 19 2008, 11:50 GMT
by Tim Clayton
The Euro pushed to highs of 1.27 as Wall Street secured opening gains. The Euro and US stocks were both unable to sustain opening gains and it weakened back to the 1.26 region. Headline consumer prices should also decline sharply on Wednesday which will given the Fed some degree of policy flexibility.
The latest NAHB housing index weakened further to a record low of 9 in October from 14 the previous month. The association noted that lenders had pulled back from new financing while consumer confidence had also weakened sharply. The housing starts data will, therefore, be watched closely on Wednesday amid fears of a further downturn in housing activity.
In this environment, there will be additional pressure for fresh policy measures to support the economy and Fed Governor Stern suggested that the Fed Funds rate could be cut to below the current 1.0% if conditions warrant.
Congressional negotiations surrounding the auto sector will continue to be watched closely while Treasury Secretary Paulson defended the switch of emphasis for the TARP programme. Acrimonious discussions would tend to unsettle the dollar.
Published on Wed, Nov 19 2008, 11:50 GMT
13
0
US deterioration to test dollar confidence
Mon, Nov 17 2008, 12:09 GMT
by Tim Clayton
The Euro was unable to sustain gains above the 1.28 level on Friday and weakened to lows near 1.26 as Wall Street dipped sharply in late trading.
The US data maintained a weaker tone on Friday with a particular focus on retail sales. There was a headline sales drop of 2.8% for the month while there was also a 2.2% underlying decline.
The weak data was certainly expected, but the sharp decline in sales will reinforce fears over the economy, especially as the ECRI leading index deteriorated at the fastest rate for 60 years. The University of Michigan consumer confidence index offered some relief with a marginal rise as gasoline prices fell, although it was historically very weak. Discussions surrounding the US auto sector will remain a very important short-term focus and political tensions surrounding the sector are liable to unsettle the US currency.
There was some disappointment that the G20 summit concentrated on a general message that further action would be taken rather than announcing any new policy initiatives. The Euro was below 1.26 on Monday before rallying back above this level.
Published on Mon, Nov 17 2008, 12:09 GMT
5
0
Daily FX Commentary
Fri, Nov 14 2008, 12:54 GMT
Dollar doubts set to grow.
Initial US jobless claims rose to 516,000 in the latest week from a revised 484,000 the previous week and this was the highest figure since 2001. Continuing claims also increased further and reached the highest level for over 25 years. The rise in initial and continuing claims suggest both an increase in layoffs and continuing difficulties in finding new jobs.
The trade deficit narrowed to US$56.5bn for September from US$59.1bn the previous month. There was a decline in exports and imports for the month which will reinforce unease over economic trends. The monthly budget deficit for October was also a record US$237.2bn as spending rose sharply while revenue declined 7.5% over the year. Overall confidence in US assets is liable to deteriorate, especially with major stresses in the consumer sector and intense pressure in the auto sector.
Wall Street weakened in initial trading, but then found some strong buying support and this helped trigger a further recovery for the Euro with a peak above 1.28. The G20 meetings will be watched very closely over the next 36 hours and the Euro retreated back towards 1.27 on Friday as caution over the global economy prevailed.
Published on Fri, Nov 14 2008, 12:54 GMT
2
0
Daily FX Commentary
Tue, Nov 11 2008, 11:55 GMT
Sterling still under pressure
After testing record lows beyond 0.82 against the Euro, the UK currency found some support on Monday, but was still generally on the defensive and it also failed to hold above 1.58 against the dollar with a slide to lows below 1.56.
The latest BRC retail sales data was again weak with a 2.2% decline in like-for-like sales in the year to October which maintain fears over consumer spending levels.
The Bank of England inflation report will, therefore, be watched closely on Wednesday for further details on the bank’s assessment of economic conditions and a very severe downgrading of prospects would continue to undermine the UK currency. Comments on fiscal policy will also remain under close scrutiny with Sterling marginally higher in early Europe on Tuesday.
The visible trade deficit fell to GBP7.5bn for September from GBP8.0bn the previous month, but the impact will be limited as there were special factors supporting the account.
Published on Tue, Nov 11 2008, 11:55 GMT
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Daily FX Commentary
Fri, Nov 7 2008, 11:48 GMT
Swiss fears increase
The Swiss franc found some support weaker than the 1.50 level against the Euro on Thursday, but it was back on the defensive against the dollar with lows near 1.1800 on a wider US rebound.
The Swiss National Bank announced a surprise interest rate cut of 0.50% which took the central rate down to 2.00% from 2.50% previously. The bank had already voiced increased concerns over the economy, especially with a downturn in export conditions, and there were warnings over a GDP contraction for the next few quarters. This was the second unscheduled rate cut since the September policy meeting and indicates an important increase in unease over prospects with the bank unwilling to let rates increase relative to the Euro-zone.
The franc still derived some significant defensive support as risk appetite faded in line with weakening asset prices as Wall Street was subjected to heavy selling for the second successive session.
Published on Fri, Nov 7 2008, 11:48 GMT
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Daily FX Commentary
Wed, Nov 5 2008, 13:53 GMT
Pressure on Bank of England
The UK currency found support near 1.56 against the dollar on Tuesday and then secured a significant advance as the US currency stumbled. Sterling was unable to sustain a move above 1.60 and dipped to lows beyond 0.81 against the Euro.
Thursday’s Bank of England interest rate decision will be a key focus with markets confident that there will be a cut if at least 0.50% and there will be further speculation of a reduction of as much as 1.0% to 3.5%, which would diminish UK yield support. A sharp cut could, however, be received favourably on hopes that a deep recession could be avoided. In this environment, high volatility will persist with Sterling just below1.58 against the dollar on Wednesday.
The UK PMI index for the services sector weakened to an all-time low of 42.4 in October from 46.0 the previous month. Industrial production also continued to fall with a 0.8% monthly decline in manufacturing, increasing pressure for a sharp Bank of England rate cut and Sterling retreated again following the data.
Published on Wed, Nov 5 2008, 13:53 GMT
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Daily FX Commentary
Mon, Nov 3 2008, 14:40 GMT
Rate expectations triggers Sterling volatility
The UK currency remained weaker on Friday with a corrective retreat to below 1.61 against the dollar after sharp gains over the previous 48 hours. Sterling also failed to hold the best levels against the Euro.
There were no significant data releases during the day which allowed interest rate expectations to dominate. There was increased speculation that the Bank of England could sanction a very sharp cut in rates of 1.00% to help stabilise economic conditions with strong expectations that rates will be reduced by at least 0.50% at the meeting. Any comments from MPC members will be watched very closely, especially as they may want to massage market expectations.
The UK currency initially pushed back above 1.6300 against the dollar on Monday as overall risk appetite recovered before retreating again as volatility remained very high.
The PMI index for the manufacturing sector edged stronger to 41.5 in October from a revised 41.2 which may provide some slight relief. The services-sector data on Wednesday will probably be important for markets and the bank given its importance for the economy as a whole.
Published on Mon, Nov 3 2008, 14:40 GMT
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Daily FX Commentary
Fri, Oct 31 2008, 11:32 GMT
ECB looks for balance
The Euro was unable to sustain the advance on Thursday after rapid gains during the past 48 hours. The currency dipped to lows near 1.28 before consolidating near 1.2900 as currency markets continued to track stock-market moves.
The Euro-zone economic data had a generally weak tone with business confidence falling sharply to a 15-year low according to the latest EU Commission survey while consumers were also gloomy as German retail sales weakened for September.
ECB officials continued to suggest that interest rates could be reduced at the November council meeting even though there was some caution over the need to balance inflation and deflation prospects. The Euro was still unsettled to some extent by widening bond spreads between individual Euro-zone countries as these will spark some debate over the risk of a Euro-zone break up in the medium term.
The Euro retreated to 1.2700 on Friday with significant selling pressure on the crosses undermining the currency while overall confidence remained very fragile as Asian equity markets drifted weaker. There were interesting comments from ECB member Bini-Smaghi who stated that the dollar and yen advances against the Euro were a temporary feature while interest rates should not be cut too far.
Published on Fri, Oct 31 2008, 11:32 GMT
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Daily FX Commentary
Thu, Oct 30 2008, 11:36 GMT
Attention will turn to Bank of Japan
The dollar initially slipped after the FOMC decision and settled near 97.00 against the yen as Wall Street dipped in late trading. The Nikkei index rallied strongly on Thursday and this helped weaken the Japanese currency with the dollar pushing back above the 98 level.
The Federal Reserve move to provide additional swap-line facilities to Asian countries helped ease stresses within Asia, notably within South Korea, and this pushed the Japanese currency weaker as forced selling eased.
There will be further speculation that the Bank of Japan will cut interest rates to 0.25% from 0.50% at the Friday meeting and there will also be speculation over official intervention to curb yen gains. The government also confirmed a JPY5trn second fiscal support package for the economy.
Expectations of official action will limit yen support during Thursday, but there will tend to be renewed upward pressure on Friday if the authorities fail to take any action.
Published on Thu, Oct 30 2008, 11:36 GMT
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Daily FX Commentary
Wed, Oct 29 2008, 11:13 GMT
Focus on Fed decision
After testing support below 1.24, the Euro secured a firmer tone over the remainder on Tuesday. There was a further small decline in Libor rates while credit-markets spreads also narrowed which curbed dollar demand even though underlying confidence remained extremely fragile.
US consumer confidence data recorded a sharp decline to a record low of 38 for October from a revised 61.4 with a sharp decline in the current and expectations components. The sharp decline will reinforce fears over the impact of deteriorating credit conditions and will maintain pressure for the Federal Reserve to cut interest rates aggressively to combat a deep recession
The Fed will be reluctant to act on individual data, but the severe stresses suggest that rates will be reduced on Wednesday which could help underpin risk appetite. The impact will be limited by the fact that markets have already priced in a reduction of at least 0.50% and a smaller reduction in rates would trigger renewed volatility.
As Wall Street extended gains sharply with the Dow Jones gaining by 10%, the Euro challenged highs above 1.27 against the dollar and it consolidated above this level in early Europe on Wednesday with a move back towards 1.28 in Europe.
Published on Wed, Oct 29 2008, 11:13 GMT
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Daily FX Commentary
Mon, Oct 27 2008, 12:08 GMT
by Tim Clayton
RBA supports Australian dollar
The Australian dollar remained under pressure during Friday as risk aversion spiked even further while credit and equity markets remained under intense pressure. There was some marginal relief late in the day, but the currency remained extremely fragile and there was renewed selling in local trading on Monday with lows around 0.6050 against the US dollar.
The Reserve Bank of Australia intervened in the markets to help support the local currency, in contrast to recent reserve-replenishment operations, as there was a further savage unwinding of positions. Volatility will remain extremely high in the short term and the Australian dollar will also tend to be undermined by the sharp decline in commodity prices as global recession fears intensify.
Published on Mon, Oct 27 2008, 12:08 GMT
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Daily FX Commentary
Tue, Oct 21 2008, 12:13 GMT
Growth cycle hurts Canadian dollar
The Canadian dollar was unable to hold stronger than the 1.18 level against the US dollar on Monday and there was a renewed decline to 1.1980 in late US trading as the US currency rallied.
The principal short-term focus will be on the Bank of Canada interest rate decision. Markets are expecting a further 0.50% to 2.00% which would tend to keep the currency on the defensive, although the bank may want to be more cautious, especially as there was a 0.50% rate cut earlier this month.
A reduction of less than 0.50% would provide immediate relief for the currency. The Canadian dollar will still be hampered by the underlying deterioration in global growth conditions, especially if there is a further decline in commodity prices.
Published on Tue, Oct 21 2008, 12:13 GMT
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Daily FX Commentary
Fri, Oct 17 2008, 10:58 GMT
US conditions deteriorate
The Euro found support near 1.3350 on Thursday, but was unable to sustain a move above 1.35. The Euro was hampered by a further decline in key commodity prices while there was renewed defensive dollar support when stock-markets fell sharply.
The US growth-related data remained generally weak with a particularly alarming Philadelphia Fed report. The manufacturing index dropped very sharply to -37.5 in October from a reading of +3.8 the previous month and this was the lowest reading since 1990. In addition, industrial production fell 3.8% in September, although this was distorted by the impact of hurricanes and the Boeing strike. The data will increase fears that the banking stresses are having a serious impact on the economy.
There was some relief in the latest jobless claims data with a dip to 461,000 in the latest week from 477,000 previously, but there will be fears that it just reflects a delay until there is a fresh surge in claims as the economy comes under pressure.
As far as inflation is concerned, headline prices were unchanged for the month while the core increase was held to 0.1%, both slightly below expectations. The data combination will reinforce speculation that the Federal Reserve will sanction a further cut in interest rates, especially as commodity prices have remained under heavy selling pressure.
Published on Fri, Oct 17 2008, 10:58 GMT
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Daily FX Commentary
Wed, Oct 15 2008, 12:48 GMT
US economy stumbles
There was a small decline in dollar Libor rates on Tuesday, but three-month rate was still at highly elevated levels near 4.50%. More positively, there was a decline in the two-year yield spread over Treasuries to the lowest level for three weeks which suggests some improvement in confidence. There should be a further improvement in credit spreads and lower Libor rates over the next few days and this narrowing should lessen underlying dollar demand, although unease will persist.
The US economic data recorded a fresh decline in consumer confidence for September on Tuesday while the Wednesday releases were notably weak. Retail sales fell by 1.2% in September with a core 0.6% decline while the New York manufacturing index fell sharply to -24.6 from -7.4 previously. The data will reinforce economic fears and maintain pressure for lower interest rates
The comments from Fed Chairman Bernanke will also be monitored very closely on Wednesday for any hints over interest rates. Two non-voting FOMC members Bullen and Yellen were cautious over the merits of further interest rate cuts in comments on Tuesday.
Published on Wed, Oct 15 2008, 12:48 GMT
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Daily FX Commentary
Mon, Oct 13 2008, 11:06 GMT
UK accelerates bank rescue plan
The Sterling trading pattern was similar to that in recent days and it weakened again against the dollar once European trading wound down. The UK currency, however, rallied again late in New York as Wall Street erased its losses with volatility extremely high.
Over the weekend, the government accelerated its plans to inject capital into four main UK banks with potential stakes of GBP45bn. the government will underwrite capital-raising attempts and will take large stakes if the private funding is not forthcoming. There was a Sterling relief rally on hopes that faster action would improve confidence towards the banking sector and stabilise credit conditions, but economic fears will remain very high.
The UK inflation data would have been important this week, but the significance has been reduced sharply by the intense stresses in the credit and equity markets. There will be further pressure on the Bank of England to cut interest rates again quickly to help restore market stability with strong expectations of a further cut at the November meting, if not earlier. Relief dominated on Monday with the UK currency rallying to above 1.72 against the dollar
Published on Mon, Oct 13 2008, 11:06 GMT
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Daily FX Commentary
Thu, Oct 9 2008, 10:36 GMT
Yen due for a correction
The Bank of Japan held interest rates at 0.50% and did not participate in the global interest rate cuts on Wednesday, although it did consider a cut in the emergency Lombard rate. The yen initially retreated following the rate cuts, but it resisted heavy selling pressure as safe-haven demand was still robust and the dollar dipped again late in US trading.
The domestic Japanese data was sharply weaker than expected with a 14.5% decline in core machinery orders for August which will increase fears that the Japanese economy will be more vulnerable than expected. In response, the government announced that it would look for a second stimulus package. The weak data will also tend to increase Japanese resistance to rapid yen gains with the G7 meetings at the end of this week in focus for further potential policy co-ordination.
Risk appetite improved slightly in Asia on Thursday and the dollar was able to regain the 100 level with a move back to highs around 101.30. Markets will remain very cautious in the short term with volatility set to continue and the yen regained ground as European bourses failed to hold initial gains.
Published on Thu, Oct 9 2008, 10:36 GMT
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Daily FX Commentary
Wed, Oct 8 2008, 10:44 GMT
Bank rescue underpins Sterling
Sterling weakened sharply in Europe on Tuesday as there were renewed fears over the UK banking sector with particular fears surrounding the Royal Bank of Scotland. The UK currency dipped to lows near 1.73 against the dollar before a rebound.
The market turmoil will increase fears that the already very weak UK economy will deteriorate further. There will be very strong pressure on the Bank of England to act this week with markets increasingly speculating over at least a 0.50% rate cut on Thursday.
The government confirmed that it would announce a package of support for the banking sector including capital injections through government stakes in the main banks while there would be additional funding to boost inter-bank lending.
Measures to boost capital will underpin confidence to some extent, although sentiment towards the financial sector, economy and currency will remain very fragile on deep recession fears. Sterling dipped to near 1.74 against the dollar and 0.7830 against the Euro on a wider increase in risk aversion as market fears increased.
Published on Wed, Oct 8 2008, 10:44 GMT
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Daily FX Commentary
Mon, Oct 6 2008, 10:31 GMT
Fear stalks global markets
The US currency was also still being supported by very tight money markets with dollar Libor over the 4% level. The House of Representatives approved the amended financial rescue bill and it will be signed into law very quickly, but confidence in the financial system remained very fragile.
The US employment data remained weak with non-farm payrolls declining by a further 159,000 in September. This was the ninth successive decline in employment and the steepest monthly fall since 2003. The unemployment rate held steady at 6.1% as people withdrew from the labour market while there as a decline in weekly hours.
The data will reinforce fears over a further deterioration in the economy with pressure for lower Fed interest rates.
The economic data was over shadowed by a renewed spike in risk aversion and major fears over the banking sector, especially with fresh turbulence in the European financial sector following confusion surrounding talks over the weekend and the need for a fresh rescue plan for German bank Hypo Real Estate.
Published on Mon, Oct 6 2008, 10:31 GMT
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Daily FX Commentary
Fri, Oct 3 2008, 10:26 GMT
Focus back on the US economy
The dollar took advantage of Euro vulnerability on Thursday and strengthened to fresh 2008 highs beyond 1.38 before a slight correction on Friday.
The US economic data continued the significantly weaker tone. Jobless claims edged high to 497,000 in the latest week from a revised 496,000 previously and this is a level which suggests recessionary conditions. There was also a sharp 4.0% decline in factory orders for August and the recent data has suggested a sudden deterioration.
Wall Street weakened sharply and it was notable that the weakness was concentrated in the large industrial stocks. This trend suggests increased fears over the wider economy and will maintain pressure for lower interest rates, especially if there is a very weak payroll report on Friday.
The US Senate passed the Administrations bail-out package and it will now pass to the House of Representatives for the second time with a vote likely on Friday. There will be strong pressure for the bill to be passed and this is the most likely outcome. Another defeat would result in serious dislocations in asset markets and major currency volatility while there will also be some disappointment if the measures are diluted. Underlying doubts over the package will also continue.
Published on Fri, Oct 3 2008, 10:26 GMT
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Daily FX Commentary
Tue, Sep 30 2008, 10:41 GMT
Technical dollar support offers protection
Despite expectations of congressional support for the US deal, there were renewed stresses on Monday as liquidity issues continued. Global central banks were forced to respond with a further massive injection of liquidity into markets. The banks announced that the dollar liquidity swaps would be increased to US$620bn from US$290bn previously.
The economic data was overshadowed by political negotiations and the markets were jolted severely again later in US trading as the House of Representatives rejected the US rescue plan. Wall Street weakened sharply with daily losses of close to 7% for the Dow Jones index while there was further intense stresses in credit markets. There will be increased fears over the economy and strong expectations that the Federal Reserve will be forced to cut interest rates.
Confidence in the Euro-zone will continue to be damaged by banking-sector difficulties, especially with economic confidence in the region also continuing to weaken. There will also be speculation that the ECB will bring forward an interest rate cut, especially with business confidence also continuing to deteriorate.
The Euro recovered sharply to highs above 1.4550 in New York before weakening back to 1.4330 on Monday in very nervous trading.
Published on Tue, Sep 30 2008, 10:41 GMT
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Daily FX Commentary
Fri, Sep 26 2008, 10:53 GMT
US economy under pressure
The Euro pushed above the 1.47 level on Thursday, but was unable to sustain the gains and dipped back to consolidate near the 1.46 level in late European trading following a temporary dip to lows around 1.4560.
The US economic data releases on Thursday all had a negative tone which will maintain fears over economic trends. Durable goods orders fell 4.5% in August while core orders also fell sharply for the month. In addition, new jobless claims rose to 493,000 in the latest week from a revised 460,000 previously. Although claims may have been pushed up by the hurricane impact, underlying labour-market fears will persist. New home sales dipped to an annual rate of 460,000 in August from a revised 520,000 for July. With inventories rising and prices falling, fears over housing and a wider downturn will continue.
Attention was still generally focussed on progress towards a US financial-sector rescue deal as congressional negotiations continued. There was fresh uncertainty late in New York as some Republicans failed to back the deal and proposed an alternative. A protracted delay would further undermine confidence and would be likely to have a mixed impact on the markets as US fears would be countered by further severe stresses in global money markets.
Published on Fri, Sep 26 2008, 10:53 GMT
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Daily FX Commentary
Wed, Sep 24 2008, 10:22 GMT
US fears limit Euro losses
The dollar found support weaker than the 1.48 level on Tuesday and recovered back to 1.47 in European trading as oil prices partially reversed Monday’s strong gains.
The Belgian business confidence index dipped sharply which maintained fears over the German IFO index. The ECB has still maintained a tough public stance on inflation and monetary policy. A key issue for the ECB is that it is concerned over wage settlements with IG Metall continuing to push for an increase in the 7-8% range. Policy tensions are liable to build, however, with Spanish Finance Minister Solbes effectively calling for lower interest rates.
The German IFO business confidence index weakened to 92.9 in September from 94.8 previously and there were negative comments from the IFO officials with calls for lower interest rates. The data will certainly maintain fears over the Euro-zone economy, although a weak figure had been expected.
Published on Wed, Sep 24 2008, 10:22 GMT
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Daily FX Commentary
Mon, Sep 22 2008, 10:25 GMT
Dollar loses support
The US Treasury confirmed on Friday that it would set up a vehicle to buy bad mortgage-related debts from the banking sector. There will be greater optimism that the authorities will finally be able to alleviate stresses within the markets and underpin the banking sector. Political negotiations will continue to be watched very closely this week.
After securing initial strength on Friday, the dollar then weakened sharply. The Euro secured strong gains against the Japanese yen as risk aversion eased and this also put upward pressure on the currency against the dollar. As stop-losses were triggered, the trend accelerated in New York.
The US Federal Reserve also confirmed that there would be additional support measures for the US financial sector with the Fed extending loans to buy asset-backed commercial paper to safeguard money-market funds.
As well as trends in risk aversion, there were increased fears over the cost of the bailouts. Treasury Secretary Paulson confirmed that the cost would likely to be hundreds of billions of dollar and could be as high as a trillion dollars.
The dollar weakened to lows beyond 1.4450 in US trading and tested support levels beyond 1.45 on Monday.
Published on Mon, Sep 22 2008, 10:25 GMT
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Daily FX Commentary
Fri, Sep 19 2008, 11:37 GMT
US Rescue plan weakens yen
The Japanese currency weakened to around 105 against the dollar after central banks provided additional liquidity on Thursday. The moves were very significant with total injections of over US$180bn and the Bank of Japan offering dollar liquidity for the first time.
As Wall Street initially struggled to sustain gains, the yen advanced back towards 104.0 in choppy trading conditions, but the Japanese currency then weakened to 105.70 as US equities rallied more strongly.
The US announced plans to ease the financial crisis through some form of bad-debt trust which would buy the debts from the banks. The move sparked a strong rally in regional asset prices on Friday and this sparked renewed yen losses
Money market conditions were still very tight as underlying stresses continued. There will also be major caution over the situation with underlying pressure for a de-leveraging liable to continue. The dollar pushed to highs around 107.70 as stock markets rallied strongly.
Published on Fri, Sep 19 2008, 11:37 GMT
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Daily FX Commentary
Thu, Sep 18 2008, 12:42 GMT
Sterling relief
Following heavy selling, confirmation that banking group HBOS was in merger talks with LLoydsTSB provided some composure and helped trigger a rally. Wider US currency weakness pushed the UK currency to highs above 1.82 against the dollar. The UK currency will gain some underlying support if financial-sector fears ease, although sentiment will remain very fragile.
The latest CBI industrial survey recorded a further sharp decline to -26 in September from -13 previously which will reinforce a lack of confidence in the economy.
The UK currency initially held firm on Thursday with confirmation that an HBOS deal had been agreed, but was unsettled by speculation that the Bank of England would cut interest rates.
UK retail sales were reported to have increased 1.2% in August compared with expectations of a monthly decline, but the sales are liable to have been driven by heavy price discounting which will limit any positive Sterling impact with underlying economic fears persisting.
Published on Thu, Sep 18 2008, 12:42 GMT
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Daily FX Commentary
Mon, Sep 15 2008, 10:46 GMT
Lehman sparks fresh turmoil
There was further speculation during Friday that investment bank Lehman would secure a sale over the weekend and this improved risk appetite which eased Euro selling on the crosses, although conditions were very choppy. The dollar continued to weaken in New York with lows beyond the 1.42, the sharpest one-day fall since March.
US financial developments dominated markets for much of Friday and even more so on Monday as Lehman Brothers announced that it would file for bankruptcy as takeover talks failed. Merrill Lynch agreed a deal to be taken over by the Bank of America while insurance group AIG announced that it would look to raise fresh capital.
Global banks announced a US$50bn liquidity pool to help an orderly unwinding of positions while the Federal Reserve relaxed collateral conditions to support liquidity.
The dollar initially weakened sharply against European currencies, but then regained ground. There were renewed fears over an unwinding of carry trades given the US financial stresses and this pushed the yen sharply stronger with a move to highs beyond 105.60, the sharpest one-day decline for 6 years.
Expectations that central banks will have to boost liquidity and keep interest rates low may curb pressure for yen gains, but it strengthened back to beyond 150.0 against the Euro and also tested support below 105.0 against the dollar in European trading.
Published on Mon, Sep 15 2008, 10:46 GMT
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Daily FX Commentary
Fri, Sep 12 2008, 10:23 GMT
Lehman sale boost boost risk appetite
The Euro remained on the defensive in European trading on Thursday with a decline to lows below 1.39 on a continuing re-positioning in global markets with the currency damaged by further selling on the crosses.
The US trade deficit rose to a 16-month high of US$62.2bn in July from a revised US$58.8bn previously. There was a strong monthly rise in energy imports as volume and prices both rose strongly. The export performance was still encouraging rising more than 3.0%.
The labour-market data again recorded a higher than expected figure for initial jobless claims at 445,000 in the latest week from an upwardly-revised 451,000 previously which will reinforce fears over the labour market. The retail sales evidence will be watched closely on Friday given that consumer spending trends will be very important for the economy as a whole.
The Euro found some support later in New York and pushed back to above 1.40 as it regained ground on the crosses with hopes for a sale of Lehman Brothers helping to push the Euro higher. The dollar held close to 1.40 in early Europe on Friday before weakening to 1.41 as the Euro gained further support on the crosses. Volatility is likely to remain higher in the short term.
Published on Fri, Sep 12 2008, 10:23 GMT
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Daily FX Commentary
Thu, Sep 11 2008, 10:29 GMT
Dollar at 12-month high
The Euro tested fresh 12-month lows close to 1.40 in US trading with a further unwinding of high-yield plays continuing to support the US currency.
US financial markets remained an important focus after sharp falls on Wall Street during Tuesday. Investment bank Lehman Brothers reported higher than expected losses for the latest quarter and announced an effective break up. The results maintained the underlying lack of confidence and put carry trades on the defensive which helped underpin the dollar. The US currency was also underpinned as commodity prices were generally lower.
The latest jobless claims data will be watched closely on Thursday as data over the past few weeks has continued to suggest an underlying deterioration in the labour market.
The European Commission cut its 2008 GDP growth forecasts for the Euro-zone and suggested that the 2009 forecasts would be lowered. There were also reports that the IMF had warned over German recession risks.
The latest French industrial production data was stronger than expected which provided some relief, but the Euro was unsettled by comments from EuroGroup head Juncker that the Euro was still overvalued and it fell again late in US trading, with a dip to below 1.39 in Europe on Thursday.
Published on Thu, Sep 11 2008, 10:29 GMT
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Daily FX Commentary
Tue, Sep 9 2008, 10:53 GMT
Limited Sterling correction
Risk appetite recovered on Monday following the US GSE bailout and this pushed Sterling stronger, but the UK currency was unable to sustain the advance against the dollar.
The UK currency weakened sharply against the dollar with fresh 30-month lows below 1.75 before a small correction as the US currency continued to punish European currencies. Sterling was little changed against the Euro near 0.8050.
The overnight UK data remained weak with the BRC reporting a 1.0% annual decline in like-for-like retail sales while the RICS reported that housing activity remained at a very low level even with some sign of stabilisation. The UK currency was trapped close to the 1.75 level against the dollar as the US currency remained robust.
UK industrial production fell 0.4% in July while there was a 0.2% dip in manufacturing output which will maintain the underlying lack of confidence in the UK economy, although the impact should be measured given the amount of deterioration priced in.
Published on Tue, Sep 9 2008, 10:53 GMT
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Daily FX Commentary
Fri, Sep 5 2008, 10:30 GMT
Carry unwind savages Euro
As expected, the ECB left interest rates at 4.25% at the latest council meeting. In the press conference following the decision, Chairman Trichet repeated that the growth risks were skewed to the downside with current conditions weak. The central bank head also warned over inflation, stating that it would stay above target for a prolonged period. There was a particular focus on wage pressures and the need to avoid secondary inflationary effects.
The relatively tough ECB inflation stance failed to provide a boost to the Euro with markets focussed on the growth risks. These fears were illustrated by the further 1.7% decline in German factory order, the eight successive decline, and confidence in the European financial sector also deteriorated as the ECB made it more expensive for banks to secure funding.
The Euro remained under pressure in US trading with particular stresses on the crosses as it weakened very sharply against the yen. The Euro also weakened to 2008 lows against the dollar with a decline to lows around 1.4215 as losses accelerated in late US trading. The Euro remained under pressure on Friday as German industrial production fell more than expected.
Published on Fri, Sep 5 2008, 10:30 GMT
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Daily FX Commentary
Wed, Sep 3 2008, 10:43 GMT
Sterling remains under pressure
The government announced some measures to support the housing sector including a reduction in house-purchase tax for the next 12 months, but market sentiment remains extremely negative towards the economy and currency. Sterling dipped to a 30-month low below 1.78 as the dollar strengthened before consolidating just above this level.
There was no relief from selling pressure on Wednesday as consumer confidence remained trapped at four-year lows while the weakness was compounded by further selling of high-yield positions as the Australian dollar weakened further. The UK currency weakened further to below 1.77 against the dollar on Wednesday and remained near record lows against the Euro as underlying selling pressure continued.
The PMI index for the services sector rose to 49.2 in August from 47.4 previously which will provide some degree of relief over the economy and will make it slightly easier for the Bank of England to resist a near-term cut in interest rates. Underlying sentiment is liable to remain very weak in the short term with further interest in selling the currency.
Published on Wed, Sep 3 2008, 10:43 GMT
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Daily FX Commentary
Mon, Sep 1 2008, 10:39 GMT
Sterling remains under pressure
Sterling sentiment remained under severe pressure on Friday and the UK currency weakened to a fresh 2-year low against the dollar with a trough near 1.8170. The August decline against the dollar was the sharpest since 1992 and the trade-weighted index dipped to a fresh 12-year low during the session. The UK currency was badly damaged again in early Asian trading on Monday following an interview from the Chancellor in the weekend press that the downturn would be the most severe for 60 years.
Attention will be focussed on economic developments as speculation over an interest rate cut before year-end will continue to build. There will be additional pressure for government action to support the economy and any measures to support the housing sector would provide some degree of Sterling support.
Sterling weakened to fresh two-year lows near 1.80 against the dollar and also dipped to a record low against the Euro as confidence in the UK economy and currency crumbled.
The PMI index for the manufacturing sector recovered to 45.9 for August from 44.1 previously which will be a slight relief, but sentiment will remain weak, especially as the mortgage approvals data remained at historically very low levels.
Published on Mon, Sep 1 2008, 10:39 GMT
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Daily FX Commentary
Fri, Aug 29 2008, 10:31 GMT
Yen targets Euro support
The Australian and New Zealand dollars were unable to sustain gains on Thursday and this also tended to support the Japanese currency. There was, however, further evidence of a flow of capital into high-yield overseas bond funds which will certainly trigger yen selling on any significant rallies. The dollar settled slightly stronger at near 109.50 in US trading.
The Japanese economic data was stronger than expected with a 0.9% increase in industrial production for July while the dip in household spending was lower than expected. The unemployment rate also fell to 4.0% from 4.1% previously while core consumer inflation rose to 2.4% from 1.9% previously.
There is unlikely to be a near-term impact on monetary policy, but the signs of economic resilience will provide some limited yen support. The yen edged stronger towards 109.0 against the dollar following the data with some headway against the Euro. Position adjustment later on Friday could trigger erratic trading and the yen strengthened to 108.50 in Europe with a further challenge on Euro support close to 160.0 against the Euro.
Published on Fri, Aug 29 2008, 10:31 GMT
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Daily FX Commentary
Thu, Aug 28 2008, 10:42 GMT
Data keeps Sterling under pressure
Sterling staged a limited recovery in European trading on Wednesday, but was then subjected to renewed selling pressure later in the day. The UK currency failed to reach 1.85 against the dollar and retreated to test fresh 2-year lows below 1.8300. Sterling also weakened to 0.8025 against the Euro as the trade-weighted index dipped to a fresh 12-year low.
Overall sentiment towards the UK economy remains very weak due to underlying recession speculation and this is contributing to further Sterling selling. Yield spreads against the Euro also narrowed to the lowest level for 7 months during the day. The UK currency remained under pressure in early Europe on Thursday with tentative evidence of rising wage settlements not having a major initial impact.
The latest Nationwide house-price survey recorded a further 1.9% decline for August to give a 10.5% annual drop which will reinforce housing fears. The latest CBI retail survey also recorded a net reading of -46 for August from -36 the previous month, reinforcing already very negative sentiment towards the economy
Sterling was trapped below 1.84 against the dollar and dipped back towards the 1.83 level following the retail sales survey.
Published on Thu, Aug 28 2008, 10:42 GMT
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Daily FX Commentary
Tue, Aug 26 2008, 10:23 GMT
IFO data undermines Sterling
Financial-market risk continued on Monday with the failure of the US Columbian Bank and this tended to provide some dollar support, although the situation could change if there is further negative data on the US economy.
US exiting home sales rose to an annual rate of 5.00mn in July from a revised 4.85mn the previous month and the small increase will maintain expectations that sales are bottoming out. Inventories, however, rose further to a record high while prices edged lower which will maintain a lack of confidence over underlying trends. The evidence on new home sales, together with the latest Case-Shiller data on prices, will be watched closely on Tuesday for further evidence on the housing-sector and whether prices could be reaching a low point.
Reportedly, the IMF has downgraded its 2008 forecast for Euro-zone growth to 1.4% from 1.8% previously and also cut its 2009 GDP growth forecast which will reinforce a lack of confidence in the Euro-zone economy. The Euro hit selling pressure above 1.48 against the dollar on Monday and retreated to 1.4685.
The German IFO index weakened to 94.8 in August from 97.5 the previous month which was worse than expected. The data will reinforce wider Euro-zone slowdown fears and will reinforce speculation over an ECB shift towards a less restrictive policy which will tend to keep the Euro on the defensive and the currency dipped to lows below 1.4600 after the data.
Published on Tue, Aug 26 2008, 10:23 GMT
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Daily FX Commentary
Fri, Aug 22 2008, 10:28 GMT
GDP revision undermines Sterling
Wider dollar weakness pushed Sterling towards the 1.88 level against the US currency on Thursday with little change against the Euro. Markets will still be expecting the Bank of England to cut interest rates as soon as there is any relief on inflation grounds and Sterling was subjected to renewed selling on Friday with a retreat back below the 1.87 level against the US currency.
UK second-quarter GDP was revised down to 0.0% from an original estimate of 0.2% as private consumption estimates were revised down. The data will further undermine confidence in the economy and currency and will certainly reinforce recession fears, especially as the estimates for services growth were also lower than expected in the three months to June. In response, Sterling weakened further to below 1.86 against the dollar and to near 0.7980 against the Euro.
European recession fears will continue to provide some degree of Sterling protection in the short term, but wider UK confidence will remain weaker given the economic stresses.
Published on Fri, Aug 22 2008, 10:28 GMT
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Daily FX Commentary
Wed, Aug 20 2008, 10:36 GMT
Bank of England split
The UK currency dipped to lows near 1.8530 in Europe on Tuesday, but resisted a further serious attack on the 1.85 level and pushed back above 1.8650 in US trading as the dollar retreated. Sterling generally drifted weaker to 0.7915 against the Euro.
Overall sentiment towards the UK economy remains weak with further expectations of a sharp deterioration in conditions and it edged lower in European trading on Wednesday. The latest CBI industrial survey also deteriorated slightly from the previous month.
According to the minutes, the Bank of England voted by a 7-2 vote for unchanged rates in August. Blanchflower voted for a cut while Besley voted for an increase, the same outcome as the previous month. The bank did voice increased fears over the growth outlook with a statement that there had been a deterioration over the past month.
There was some discussion of a rate cut which will curb Sterling support, although all outcomes were considered at the meeting which illustrates the difficulties faced by the bank.
Published on Wed, Aug 20 2008, 10:36 GMT
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Daily FX Commentary
Mon, Aug 18 2008, 10:20 GMT
Fragile Sterling correction
The UK currency tested support close to 1.85 against the dollar on Friday, but found support close to this level and corrected higher to 1.8630 while Sterling also regained some ground against the Euro with an advance to 0.7875.
Sterling had weakened for 11 successive days against the dollar and was therefore due for a technical correction stronger even though underlying confidence in the currency remains weak.
The latest data recorded a 24% annual increase in housing repossessions while the Rightmove house-price index recorded a 2.3% decline in August for a 4.8% annual decline. The housing data and downbeat BCC survey will maintain fears over the economy as a whole, although the immediate impact will be limited as a substantial deterioration has been priced in
The Bank of England will again be an important focus this week. Minutes from August’s MPC meeting are due on Wednesday and these will be important for interest rate expectations as underlying pressure for lower rates continues to increase. Markets will also stay on high alert for comments from bank officials following the shift in interest rate expectations. Sterling edged stronger towards 1.87 against the dollar on Monday on a wider correction for the US currency.
Published on Mon, Aug 18 2008, 10:20 GMT
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Daily FX Commentary
Fri, Aug 15 2008, 10:35 GMT
Commodity slide boost dollar
US consumer prices rose by a further 0.8% for July after a 1.0% increase the previous month with the annual rate at a 17-year high of 5.6%. The core increase was also higher than expected at 0.3% for the second successive month which will maintain inflation fears with the annual increase at 2.5% compared with an unofficial target ceiling of around 2.0%.
The market impact was limited as there was also a focus on the latest jobless claims data which remained at elevated levels. Initial claims were 450,000 in the latest week while continuing claims rose to the highest level for four years.
The dollar initially weakened following the data with growth concerns persisting. The Euro was unable to break above 1.4950 and dipped sharply to lows below 1.48 in New York as crude prices dipped sharply with global growth fears also still a key dollar support factor.
The US currency retained a firm tone in Asia on Friday with a peak close to 1.47 in European trading. Commodity prices continued to decline with gold falling to below the US$800 per ounce level for the first time in 2008.
Published on Fri, Aug 15 2008, 10:35 GMT
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Daily FX Commentary
Thu, Aug 14 2008, 10:09 GMT
Bank pessimism hurts Sterling
Sterling came under heavy selling pressure on Wednesday following the Bank of England quarterly inflation report.
In the quarterly outlook, the Bank of England forecasted that inflation would peak close to 5.0% late in 2008. The main focus, however, was the renewed downgrading of growth forecasts with the bank warning that the economy would probably not grow over the next 12 months. A recession was a possibility and Bank Governor King noted that conditions would be very difficult. The bank’s warning triggered a shift in interest rate expectations with markets moving to price in a cut before the end of 2008.
The adjustment in yield expectations will undermine Sterling in the short term, especially with a wider move out of high-yield currencies. The UK currency dropped around 0.7975 against the Euro and also pushed to 22-month lows below 1.8650 against the dollar as confidence weakened sharply. The trade-weighted index was also at an 11-year low. The currency has now discounted a substantial amount of bad news which may limit losses, but it remained on the defensive on Thursday.
Published on Thu, Aug 14 2008, 10:09 GMT
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Daily FX Commentary
Mon, Aug 11 2008, 10:52 GMT
Canadian dollar at 12-month low
The Canadian dollar continued to weaken on Friday as the US currency pushed stronger across all the major currencies. Domestically, the headline labour-market data was weaker than expected with a further decline in employment for the month. There was a 55,000 employment dip which was the sharpest decline in 17 years as part-time jobs were cut.
Although the unemployment rate was slightly lower than expected at 6.1%, the data will reinforce expectations of lower interest rates in the medium term, although the near-term impact may be measured with the Bank of Canada holding steady for now.
The underlying decline in commodity prices during August will also tend to undermine the Canadian dollar and the Canadian dollar sipped to lows near 1.0680, the lowest level for 12 months. The US currency is, however, heavily over-bought after recent gains and volatility levels are liable to remain elevated.
Published on Mon, Aug 11 2008, 10:52 GMT
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Daily FX Commentary
Fri, Aug 8 2008, 10:29 GMT
Euro sentiment turns
As expected, the ECB left interest rates unchanged at 4.25% at the latest council meeting. In the press conference following the decision, ECB President Trichet continued to warn over inflation threat with increased medium-term risks while the bank’s mandate was solely to maintain price stability. Trichet, however, also warned over the growth outlook by stating that there had been a substantial slowdown around the middle of the year while the growth risks were materialising.
Although the headlines were still relatively neutral, Trichet’s comments are liable to reinforce market speculation that the ECB made a mistake in raising interest rates in July. There will be expectations that the bank will start to reverse policy later in the third quarter and this will undermine the Euro, although the bank will be very cautious.
A key feature is still that markets are more concerned over global and European economic risks and this is continuing to underpin the dollar. The US currency pushed to 7-week highs near the pivotal 1.53 level in US trading. On a trade-weighted basis, the dollar pushed to the highest level since February. The US currency strengthened further in Asia on Friday and the Euro dipped to below 1.52.
Published on Fri, Aug 8 2008, 10:29 GMT
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Daily FX Commentary
Thu, Aug 7 2008, 10:32 GMT
ECB under pressure
The Euro was unable to sustain the advance above 1.55 on Wednesday and drifted weaker ahead of the New York open as underlying dollar confidence remained firm. Oil and commodity prices initially rallied, but also failed to sustain the advance and tested new 3-month lows in US trading which also triggered fresh buying support for the US dollar. The US currency pushed just beyond the 1.54 level which was a fresh 7-week high.
Attention on Thursday will be clearly on the ECB policy decision even though a change in interest rates is unlikely. The press conference by the central bank will be very important for Euro sentiment over the next few weeks.
The central bank will certainly remain concerned over inflation, but markets will be watching comments on growth and interest rate prospects very closely given criticism over the July interest rate increase and the evidence of a sharp downturn in the Euro-zone economy over the past few weeks.
If the ECB signals increased fears over the growth outlook and makes any hint of a policy reversal, then the Euro will be vulnerable to further heavy selling pressure. Markets will also be on high alert over any comments on exchange rates.
Published on Thu, Aug 7 2008, 10:32 GMT
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Daily FX Commentary
Mon, Aug 4 2008, 10:54 GMT
Sterling in difficulties
The UK PMI index for the manufacturing sector released on Friday will maintain recession fears following a very weak run of data over the past week. The data put Sterling on the defensive and it dipped to test support levels below 1.9750 against the dollar while it settled close to 0.7880 against the Euro.
The services-sector PMI data will be very important on Tuesday ahead of the latest Bank of England interest rate decision on Thursday. Confidence in the UK economy will continue to deteriorate if there is another depressed reading.
Markets will still be expecting the bank to hold policy steady in the short term to curb inflation and this will continue to provide some Sterling support. The currency weakened towards 0.7920 against the Euro on Monday as economic fears persisted with the UK currency also weakening to below 1.97 against the dollar.
The latest construction PMI index dipped to fresh multi-year lows of 36.7 in July from 38.8 the previous month which will maintain a severe lack of confidence in the construction sector. Fresh unease over the UK banking sector also unsettled the currency in European trading on Monday.
Published on Mon, Aug 4 2008, 10:54 GMT
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Daily FX Commentary
Fri, Aug 1 2008, 10:30 GMT
Dollar looks to survive payroll test
The dollar was unable to make a fresh attack on the 1.5550 level on Thursday and weakened sharply following weaker than expected US data releases. Second-quarter GDP growth was provisionally estimated at an annualised 1.9% from 0.9% the previous quarter which was below expectations while the fourth quarter of 2007 was revised to show a contraction.
Business investment and the housing sectors were weak while exports provided important support. There was a sharp decline in business inventories, but this should lessen pressure for a further substantial drawdown in stocks this quarter.
Elsewhere, jobless claims rose sharply to a 5-year high of 448,000 in the latest week from 404,000 while continuing claims rose sharply. Although the data may have been distorted by technical changes, there will be reduced confidence over the Friday employment report. Following the weaker than expected data, the dollar dipped to lows of 1.57 against the Euro.
In contrast, the Chicago PMI index rose to 50.8 for July from 49.6 the previous month, the first reading above 50.0 for six months as orders strengthened which eased fears over the national survey.
The dollar recovered to 1.5560 on Friday ahead of the key monthly payroll release
Published on Fri, Aug 1 2008, 10:30 GMT
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Daily FX Commentary
Tue, Jul 29 2008, 10:31 GMT
Consumer pressures undermine Sterling
There will still be some significant Sterling protection from evidence of sustained weakness in the Euro-zone as there should not be any major net capital flows out of the UK into Europe. In this context, Sterling recovered back to 0.79 against the Euro and 1.9950 against the dollar in US trading on Monday.
The financial-sector fears will tend to undermine the UK currency, but the impact should be limited as the main short-term focus has not been on the UK banking sector which will help protect Sterling.
UK mortgage approvals fell to 36,000 in June from 42,000 the previous month which was fresh record low while net lending data was also weak and indicates very subdued consumer demand. In addition, the latest UK CBI retail survey recorded a net balance reporting higher sales of -36 in July from -9 the previous month. This was the lowest report since 1983 while there was extreme weakness in the household goods sector.
Published on Tue, Jul 29 2008, 10:31 GMT
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Daily FX Commentary
Mon, Jul 28 2008, 10:19 GMT
Bank fears undermine Australian dollar
The Australian dollar was unsettled in early local trading on Monday by substantial write-downs by ANZ Bank which reinforced the fears surrounding the sector following a similar move by NAB last week.
The latest economic data also recorded a decline in business confidence. The Australian currency dipped towards the 0.95 level before recovering back to 0.9550 in cautious markets. Overall confidence is liable to remain weaker in the short term and regional sentiment has deteriorated with the New Zealand dollar also under some pressure.
There will still be buying support on dips given the still favourable yield considerations with Japanese investors in particular still looking to buy on significant retreats. Nevertheless, there has been a significant erosion in sentiment which curtail support.
Published on Mon, Jul 28 2008, 10:19 GMT
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Daily FX Commentary
Wed, Jul 23 2008, 10:28 GMT
MPC split boosts Sterling
Sterling pushed to highs near 2.0080 against the dollar in Europe on Tuesday before weakening sharply to lows just below 1.99 as the US currency rallied. The UK currency secured a firmer tone against the Euro with gains to 0.7925.
The latest minutes recorded that the Bank of England MPC committee voted 7-2 for unchanged interest rates in July with Blanchflower voting for a cut while Beasley voted for an increase due to the need to control inflation expectations. The minutes will provide some near-term Sterling support on yield grounds, especially as there was little apparent discussion of a cut in rates.
There will still be apprehension over the latest retail sales data which is due for release on Thursday, especially as there will be expectations of a sharp decline following the surprise surge in sales last month.
There will be some Sterling support from an easing of immediate fears surrounding the global financial sector and renewed interest in carry trades while increasing fears over the Euro-zone will also provide a degree of protection.
Following the MPC minutes, Sterling strengthened to test levels beyond 0.79 against the Euro.
Published on Wed, Jul 23 2008, 10:28 GMT
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Daily FX Commentary
Mon, Jul 21 2008, 10:22 GMT
Blanchflower hurts Sterling
The UK currency recovered some ground against the Euro on Friday, but there was further evidence of tough resistance on any move towards the 0.79 level while Sterling was unable to regain the 2.00 level against the US currency.
MPC member Blanchflower made a very negative assessment in comments over the weekend with a warning that the economy was probably already in recession. He also called for interest rates to be cut substantially from current levels to avoid an even deeper downturn. The latest housing data also remained weak with the Rightmove organisation reporting a 1.8% decline in house prices for July.
The UK currency was undermined by the data and Banchflower’s comments with a renewed decline towards the 1.99 level against the dollar on Monday while Sterling also lost ground against the Euro with lows around 0.7975.
Published on Mon, Jul 21 2008, 10:22 GMT
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Daily FX Commentary
Fri, Jul 18 2008, 10:17 GMT
Yield plays undermine yen
The dollar strengthened sharply to highs around 107.10 in US trading on Thursday as Wall Street attempted to rally again on an improvement in risk appetite while the yen also depreciated sharply against the Euro. Weaker than expected US earnings data pushed the dollar weaker late in US trading and volatility is likely to be a key short-term feature.
Bank of Japan Governor Shirakawa stated on Friday that the central bank was treating the upside inflation risks and downside growth risks equally, but minutes from the latest policy meeting indicated that most members were more concerned over downside growth risks and this will reinforce market expectations that the bank will not increase interest rates.
The yen will remain vulnerable on yield grounds and, although Japan is a big net oil importer, the impact of lower oil prices is liable to be a slight negative factor the currency as risk appetite would improve with the dollar near 106.20 on Friday.
Published on Fri, Jul 18 2008, 10:17 GMT
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Daily FX Commentary
Mon, Jul 14 2008, 10:25 GMT
CPI data key for Sterling direction
Sterling found support close to 0.80 against the Euro for most of the day, but dipped through this level late in US trading as liquidity declined and global financial risk increased.
A bid approach for the Alliance & Leicester banking group, assumed to be from Santander, provided some Sterling support on expectations over merger-related capital inflows.
UK input producer prices rose 2.1% in June with output prices rising 0.9% over the month. The monthly rate of increases has slowed and was below expectations, but the annual rates were 30.3% and 10.0% respectively which will maintain inflation fears and limit initial selling pressure.
The consumer inflation data will be watched very closely on Tuesday as the data will have a key impact on interest rate expectations. A lower than expected increase would undermine near-term Sterling support with increased speculation that the Bank of England would be able to move towards an interest rate cut within the next few months.
Published on Mon, Jul 14 2008, 10:25 GMT
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Daily FX Commentary
Fri, Jul 11 2008, 10:44 GMT
Financial fears unsettle the dollar
The dollar was unable to sustain gains through the 1.57 level against the Euro on Thursday and weakened to lows around the technically important 1.58 region after support levels near 1.5750 were broken with the dollar still weak on Friday.
There were further concerns over the US financial sector with a fresh batch of rumours surrounding Lehman Brothers which undermined dollar confidence in US trading. There were also continuing fears over the US mortgage companies with finance companies Fannie Mae and Freddie Mac falling again after remarks from Regional Fed Governor Poole that the companies could be insolvent. There were some media reports that the government could consider taking over the companies if stresses increased further and this may provide some degree of dollar support, although confidence will remain fragile.
Treasury Secretary Paulson commented that markets will take additional time to stabilise while he also stated that some financial firms must be allowed to fail which reinforced market fears.
Initial US jobless claims were sharply lower than expected with a decline to 346,000 in the latest week from 404,000 previously. The decline may have been caused to a major degree by seasonal considerations in the auto sector.
Published on Fri, Jul 11 2008, 10:44 GMT
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Daily FX Commentary
Wed, Jul 9 2008, 10:18 GMT
Market lacks conviction
The dollar again found support close to the 1.5750 region against the Euro on Tuesday and strengthened to highs around 1.5640 in US trading. US pending home sales fell 4.7% in May after a revised 7.1% increase previously. The decline will reinforce expectations that a significant near-term housing recovery is unlikely, but should not have a major market impact.
Fed Chairman Bernanke suggested that the Fed could extend US banks’ access to the discount window beyond the end of 2008 while the facility could also be broadened. This provided some degree of support to the banking sector with greater confidence that the Fed would take measures to underpin liquidity and reduced fear over a further deterioration in conditions. This improved sentiment on Wall Street which also helped underpin the dollar as risk appetite recovered.
The US currency also drew support from a sharp decline in oil prices towards US$135 per barrel during the day, although the currency impact from energy prices was less than seen over the previous few weeks.
Published on Wed, Jul 9 2008, 10:18 GMT
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Daily FX Commentary
Mon, Jul 7 2008, 10:44 GMT
Australian dollar correction
The Australian dollar was unable to push above the 0.9650 level against the US dollar on Friday in subdued trading, but retained a generally firm tone.
The currency was weaker in local trading on Monday and dipped below the 0.96 level. The domestic data remained generally weak with the construction PMI index remaining well below the 50.0 level according to the latest survey while there was also a decline in reported job adverts. The combination of data will which reinforce expectations that the economy is facing an important slowdown.
The Australian currency will also tend to be sold if there is a sustained retreat in commodity prices with choppy trading liable to continue as the G8 meetings are monitored. Yield support will remain intact which will provide some important degree of support for the currency.
Published on Mon, Jul 7 2008, 10:44 GMT
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Daily FX Commentary
Fri, Jul 4 2008, 10:31 GMT
US employment falls again
The monthly US payroll report was close to expectations with a decline of 62,000, the six consecutive decline, while the May data was revised to show a 62,000 drop for the month. The unemployment rate held at 5.5% following the sharp increase seen the previous month. The latest jobless claims data also recorded an increase to 404,000 in the latest week.
The US non-manufacturing ISM index was weaker with a decline to 48.2 in June from 51.7 the previous month as higher prices undermined confidence. The dollar initially weakened to 1.5770, but then rallied back to 1.57 on a spate of short covering ahead of the Independence Day holiday.
Unease over the US economy will tend to limit the scope for dollar gains with doubts as to whether the Fed will be able to increase interest rates. The US currency was holding around 1.5715 in early Europe on Friday with cautious activity given the US holiday.
Published on Fri, Jul 4 2008, 10:31 GMT
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Daily FX Commentary
Mon, Jun 30 2008, 10:56 GMT
Conflicting ECB pressures
The dollar was unable to strengthen back through the 1.57 level on Friday and weakened to test support levels around 1.5780 as US equity markets remained fragile and the US economic data again failed to have a major impact.
The Euro-zone data remained generally weak with a further small decline in consumer confidence for the month while there was a bigger than expected decline in business sentiment to 0.14 in June from 0.58 the previous month. The data will reinforce expectations of a sharp slowdown in the economy and increase pressure for the ECB to hold back on an interest rate increase.
The central bank will want to maintain a tough stance, especially as inflation fears have also increased, but pressure for a hike to be abandoned will grow if equity markets continue to weaken this week. The dollar was still on the defensive on Monday at close to the 1.58 level with caution given the risk of choppy trading at the end of the first half. Subsequently, the dollar weakened to 1.5825 and the preliminary Euro-zone CPI data for June recorded an increase to 4.0% from 3.7% previously.
Published on Mon, Jun 30 2008, 10:56 GMT
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Daily FX Commentary
Fri, Jun 27 2008, 10:53 GMT
Canadian dollar tests resistance
The Canadian dollar again hit selling pressure below the 1.01 level against the US currency on Thursday and dipped to 1.0140, although ranges were generally narrow.
The Canadian currency failed to gain any significant support from the push in oil prices to record highs as the currency was unsettled by an increase in risk aversion as equity prices weakened sharply.
Uncertainty is liable to be a key short-term feature as markets are likely to lack conviction over trends. The domestic influences are likely to remain limited, but a strong reading for producer prices would provide some support.
The Canadian currency pushed to 1.0055 in European trading on Friday as markets tested moving averages.
Published on Fri, Jun 27 2008, 10:53 GMT
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Daily FX Commentary
Wed, Jun 25 2008, 10:23 GMT
FOMC statement in focus
The dollar was unable to re-test Euro support levels beyond 1.55 on Tuesday and had a generally weaker tone with lows around 1.5620 following the US data. The US data releases provided no support to the US currency as consumer confidence fell to 50.4 in June from a revised 58.1 the previous month. This was the 5th lowest reading of all time and will reinforce fears over the consumer spending trends.
Inflation fears were also significant with the 1-year inflation expectations index at 7.7% within the confidence data. The combination of growth and inflation unease will reinforce the difficulties faced by the Federal Reserve. Assuming the Fed leaves interest rates on hold at 2.0% at the FOMC meeting on Wednesday, the statement will be watched extremely closely and will be very important for near-term market direction. There is also the possibility of dissenting calls for higher rates
The dollar will be vulnerable to renewed selling pressure if the Fed concentrates on growth risks while a greater emphasis on the need to control inflation and a tightening bias would provide support. Any references to the need to curb dollar weakness will also be watched very closely and would offer dollar support.
Published on Wed, Jun 25 2008, 10:23 GMT
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Daily FX Commentary
Mon, Jun 23 2008, 10:34 GMT
Euro economy under pressure
The dollar was unable to make any challenge on levels below 1.55 on Friday and weakened steadily to lows just beyond 1.5650 before consolidating around 1.5620. The US currency was undermined by a renewed increase in energy and commodity prices during the day with crude reversing Thursday’s losses.
The dollar was initially little changed close to 1.56 on Monday with the US currency hampered by high oil prices following the Jeddah summit where no major policy announcements were made.
The French PMI indices weakened sharply for June with the services and manufacturing indices both below the 50.0 level. The German manufacturing PMI index fell, but the services index was little changed. The influential German IFO index weakened to 101.3 in June from 103.5 the previous month which was worse than expected.
Both Euro-zone PMI indices were below the 50.0 level for June and the services index was at the lowest level for five years. Concerns over the Euro-zone economy will increase and there will be pressure for the ECB not to increase interest rates which will unsettle the Euro. The dollar recovered firmly to around 1.5520 level following the European data.
Published on Mon, Jun 23 2008, 10:34 GMT
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Daily FX Commentary
Fri, Jun 20 2008, 10:26 GMT
Dollar loses ground
The dollar weakened to near 1.5590 in early Europe on Thursday, but then found some relief as the Euro came under pressure against Sterling. The US currency also secured some support from a reversal in oil prices, but it was again unable to break Euro support close to the 1.5460 level with further consolidation around 1.55 and a slightly weaker dollar on Friday.
The US economic data releases provided no support to the US currency. The Philadelphia Fed index weakened to -17.1 in June from -15.6 previously although there was another strong reading for the prices component. Initial jobless claims were little changed at 381,000 in the latest week while the number of continuing clams was lower than expected. There was some disappointment, but little change in interest rate futures with caution ahead of the Fed rate-setting meeting next week.
Dollar selling increased in European trading with the Euro pushing to the 1.5610 level. The US currency was unsettled in part by a renewed rally in commodity prices. The Saudi oil summit will be watched closely over the weekend and evidence of a lack of significant action to boost supply or curb demand would tend to trigger a renewed oil buying next week which would also tend to undermine the US currency.
Published on Fri, Jun 20 2008, 10:26 GMT
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Daily FX Commentary
Tue, Jun 17 2008, 10:30 GMT
Euro economy weakening
The US currency weakened sharply in European trading on Monday with a low near 1.5520. The dollar was unsettled by a sharp rise in oil prices to record highs, although crude did retreat from its best levels later in US trading which helped the US currency rebound from lows.
The German ZEW weakened to -52.4 in June from -41.4 the previous month which was the lowest reading sine 1993. The renewed deterioration will increase fears that the Euro-zone economy is under pressure, especially as the ZEW warned over worsening loan conditions. The institute also stated that the prospect of higher interest rates was one factor behind the deterioration in confidence.
Any evidence of policy divisions within the ECB or national governments would also unsettle the currency. Lower US yields were the dominant factor and the dollar retreated to 1.5550 in early Europe on Tuesday before consolidating around 1.5510 while the Euro retreated after the ZEW data, although the currency was finding support on dips to near 1.5460.
Published on Tue, Jun 17 2008, 10:30 GMT
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Daily FX Commentary
Mon, Jun 16 2008, 10:46 GMT
CPI data crucial for Sterling
Sterling remained under pressure against the dollar during Friday and weakened to lows around 1.9410 before pushing back towards the 1.95 level later in US trading as support levels held. The UK currency strengthened against the Euro, but there was evidence of further selling at levels stronger than 0.7880 which curbed gains.
The UK inflation data will be watched closely this week and there were hints from the Treasury that it is expecting a letter to be received from the Bank of England which suggests that the rate will be above the 3.0% level.
This should come as no surprise given the recent upward pressure on prices. A very strong inflation reading would, however, increase speculation that the Bank of England could be forced to increase interest rates which could provide some Sterling support even with sentiment still undermined by fears over the economy.
The latest BOE quarterly bulletin warned that higher inflation may persist in the medium term and the UK currency was slightly stronger on Monday on yield considerations. Subsequent dollar weakness pushed the UK currency to a peak around 1.96 against the US currency
Published on Mon, Jun 16 2008, 10:46 GMT
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Daily FX Commentary
Fri, Jun 13 2008, 10:42 GMT
Dollar sales boost
The US retail sales data was stronger than expected with a 1.0% increase for May after an upwardly-revised 0.4% increase previously while there was also an underlying increase of 1.2% for the month. There was an increase in initial jobless claims to 384,000 in the latest week, although this may have been distorted by the Memorial Day holiday.
The net result of the data was a further increase in Treasury bond yields as 10-year yields rose to above 4.20% while markets continued to price in a series of interest rate increases by the Federal Reserve. The dollar strengthened to highs around 1.5380 against the Euro, but was unable to break resistance around this level and weakened back through 1.54.
Import prices rose by a further 2.3% in May, illustrating the upward pressure on prices. Inflation trends will also be a very important focus on Friday with the monthly consumer prices data. A higher than expected increase in prices would reinforce speculation that the Federal Reserve would be forced to increase interest rates to help combat inflationary pressure and yield spreads would move in the dollar’s favour after a significant narrowing of spreads with the Euro over the past few days.
Concerns over a no vote in Irish referendum helped push the Euro down to 1.5330 later in European trading.
Published on Fri, Jun 13 2008, 10:42 GMT
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Daily FX Commentary
Thu, Jun 12 2008, 10:28 GMT
Australian dollar retreat
The Australian dollar was unable to regain the 0.95 level against the US currency on Wednesday and had a significantly weaker tone on Thursday.
The domestic data offered no support for the currency with an employment decline of 19,700 for May compared with expectations of an increase of around 10,000 while the unemployment rate was also higher than expected at 4.3% which will reinforce fears over a significant slowdown in the economy.
Regional equity markets were also generally under pressure on Thursday which undermined the Australian currency and it weakened to below the 0.94 level against the US currency with a low near 0.9350 as the US currency secured wider gains. Yield support will continue for the local currency, but the net risks suggest that there will be a further Australian dollar correction weaker in the short term.
Published on Thu, Jun 12 2008, 10:28 GMT
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Daily FX Commentary
Mon, Jun 9 2008, 10:29 GMT
UK inflation surge
There were no significant UK developments on Friday, although a further annual decline in retail sales by the John Lewis group unsettled confidence. Sterling remained generally weak against the Euro with lows around 0.80, although it did exhibit some initial resilience. The UK currency also tested levels above 1.97 against the dollar as the US currency slumped.
Underlying confidence in the UK economy will remain very weak in the short term, especially as there has been a renewed increase in energy prices which will increase pressures on spending and risk an increase in political protests.
UK input producer prices rose by a further 3.8% in May with a 27.9% annual increase while there was a very strong increase in output prices. The big increase in core prices of 1.2% for a 5.9% annual increase will reinforce expectations that the Bank of England will not be able to cut interest rates in the near term and there is likely to be some speculation over an increase. This will provide some Sterling support, although the impact will be substantially weakened by fears over an even steeper economic deterioration.
Published on Mon, Jun 9 2008, 10:29 GMT
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Daily FX Commentary
Fri, Jun 6 2008, 11:11 GMT
ECB rate-hike threat
The dollar strengthened to test Euro support levels near 1.5370 in early US trading on Thursday, but then reversed course sharply.
At the latest council meeting, the ECB left interest rates at the 4.00% level. In the press conference following the decision, however, ECB President Trichet took a much tougher stance than expected. Trichet stated that inflation concerns had increased and that the bank was strongly committed to avoiding second-round inflation effects.
The ECB raised its 2008 inflation forecast to 3.4% from 2.9% previously while cutting the growth estimates. Trichet stated that there had been some calls for interest rates to be increased at the meeting while the bank was in a heightened state of alert. The ECB head stated that a small interest rate increase was possible and could come as early as the July meeting.
The very hawkish tone will underpin the Euro in the short term. There will, however, be a suspicion of more serious divisions within the ECB members while there will also be fears that any increase in rates from current levels would further damage the Euro-zone economy. More serious signs of weakness would also increase political opposition to an interest rate increase.
Published on Fri, Jun 6 2008, 11:11 GMT
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Daily FX Commentary
Wed, Jun 4 2008, 10:26 GMT
UK weakness confirmed
Sterling dipped to lows around 0.7940 against the Euro on Tuesday before recovering back to 0.7870 as the Euro retreated sharply against the dollar. The UK currency was unable to sustain a move above 1.97 against the dollar.
The UK currency remained generally weak against the dollar on Wednesday and dipped to below the 1.96 level as sentiment remained depressed while it lost ground against the Euro.
The PMI index for the services sector weakened to 49.8 in May from 50.4 the previous month and the figure below the 50.0 level will reinforce fears over the domestic economy, especially as it was the first reading below the 50.0 level for over five years.
There will be some speculation that the Bank of England will cut interest rates this week, although the data was probably not weak enough to trigger an immediate bank move given that the prices index remained high with inflation fears persisting. Markets will still be tense ahead of Thursday’s MPC decision.
Published on Wed, Jun 4 2008, 10:26 GMT
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Daily FX Commentary
Mon, Jun 2 2008, 10:17 GMT
Sterling fears return
Sterling was unable to sustain gains against the Euro on Friday and weakened back to around 0.7860 in US trading while the UK currency found support below 1.97 against the dollar during the day.
Sterling was unsettled in Asian trading on Monday by fears over the UK banking sector as the Bradford and Bingley chief executive was forced to leave office due to ill-health. There was also a major profits warning which helped trigger further speculation that the housing sector would continue to deteriorate.
The impact should be offset slightly by news of an overseas stake in the bank, but underlying Sterling sentiment remained generally weak with a lack of confidence in the domestic economy contributing to short-term selling pressure. Sterling weakened back beyond 0.79 against the Euro and also dipped sharply to lows near 1.96 against the dollar.
The shadow MPC committee, comprised of academics voted by an 8-1 margin for unchanged rates ahead of the official MPC interest rate decision this Thursday. The UK data releases were also generally weak with the PMI index for the manufacturing sector weakening to 50.0 in May from 50.8 the previous month. The mortgage approvals data was at a record low while net consumer lending was also subdued.
Published on Mon, Jun 2 2008, 10:17 GMT
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Daily FX Commentary
Fri, May 30 2008, 10:20 GMT
Solid CAD fundamentals
The Canadian dollar spiked stronger to levels around 0.9820 against the US dollar on Thursday before weakening back towards the 0.99 level. The Canadian currency was again influenced strongly by oil-price trends and dip in prices was generally a negative influence, although energy-market conditions remained choppy.
Domestically, the current account surplus strengthened to CAD5.6bn in the first quarter of 2008 from a revised CAD0.8bn thee previous quarter which will tend to boost confidence in the economy and competitive position.
The evidence also suggests that there is heavy retail speculative Canadian dollar selling which will limit the scope for further near-term selling pressure, especially given the potential for investment inflows.
Nevertheless, the Canadian currency still looks to offer little value close to the 0.98 level against the US currency given the underlying firmer US tone in global markets
Published on Fri, May 30 2008, 10:20 GMT
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Daily FX Commentary
Tue, May 27 2008, 10:28 GMT
Euro faces barriers to gains
Following the weak Euro-zone data on Friday when there was a sharp decline in the PMI services sector with Euro-zone data generally downbeat as German consumer confidence weakened in the latest month.
French housing starts also weakened to the lowest level on record since the series started in 2000 while French business confidence also continued to weaken in the latest survey.
The ECB will still want to focus on inflation in the short term, especially as inflation levels are likely to remain elevated in the short term. The Euro will gain some support from the ECB stance, but it will be increasingly difficult for the Euro to benefit if there is evidence of more substantial deterioration in the Euro-zone.
There will also be some renewed fears over the financial sector as the ECB’s emergency funding facility was tapped on Monday.
Published on Tue, May 27 2008, 10:28 GMT
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Daily FX Commentary
Fri, May 23 2008, 13:21 GMT
Euro-zone economy weakening
The Euro pushed to just above the 1.58 level against the dollar in early Europe on Thursday, but was unable to sustain the gains and generally drifted weaker during the day. Energy and gold prices again had an important impact on the US currency.
Oil advanced to a new record high in Asia around US$135 per barrel before a retreat. As gold prices also weakened, there was increased pressure for a Euro correction weaker while there was also pressure for a correction after recent gains.
The latest Euro-zone industrial orders data recorded a 1.0% monthly decline for a 2.5% annual fall, maintaining the recent weak trend. Although the German evidence has been generally firm this week, data from other Euro-zone economies has been less favourable, illustrating the risk of further divergence within the Euro area.
The Euro-zone PMI index for the manufacturing sector weakened to 50.5 in May from 50.7 while the services-sector index dipped sharply to 50.6 from 52.0 and suggests that the economy has stalled given that both sector are close to the 50.0 level. There was also a further reported decline in French consumer spending.
Published on Fri, May 23 2008, 13:21 GMT
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Daily FX Commentary
Mon, May 19 2008, 10:28 GMT
CAD correction threat
The Canadian dollar continued to attack US dollar support levels below the 1.00 level on Friday and pushed to two-month highs near 0.9950. The Canadian dollar was boosted by renewed gains in oil prices with no significant domestic influences.
The Canadian dollar will also continue to draw some near-term support from the increase in risk appetite, especially as confidence towards the North American economy has stabilised while energy prices will remain a key influence.
The Canadian currency was holding around 0.9980 in early Europe on Monday as a Saudi pledge to boost oil output curbed further increases in oil prices, but the currency then strengthened to 0.9930.
The Canadian dollar could remain firm in the very short term, but will struggle to extend gains beyond current levels given the risk of a speculative bubble in energy prices.
Published on Mon, May 19 2008, 10:28 GMT
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Daily FX Commentary
Fri, May 16 2008, 10:18 GMT
Dollar protection
The dollar weakened following firmer than expected Euro-zone growth data on Thursday and was also unsettled by a renewed increase in oil and commodity prices. The US growth-orientated data was mixed, but the forward-looking data was marginally positive. Industrial production fell by 0.7% in April after a revised 0.2% increase the previous month and capacity use also declined.
The New York manufacturing index edged lower to -3.2 in May from +0.6 the previous month, although this followed a strong rebound previously. Jobless claims were little changed at 371,000 in the latest week while the NAHB housing index remained weak. The Philadelphia Fed index improved to -15.6 in May from -24.9 previously and there was a strong rebound in the six-month outlook for the second month running which will fuel expectations of an economic rebound.
Long-term capital inflows to the US remained firm in March at US$80.4bn from US$63.6bn the previous month with firmer equity inflows, although overall flows were negative for the month due to an outflow of shorter-term capital.
The housing data will be watched closely on Friday and another slide in starts would provide a stern test of increased optimism over the US economy while any increase could trigger a substantial positive jolt.
Published on Fri, May 16 2008, 10:18 GMT
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Daily FX Commentary
Mon, May 12 2008, 10:19 GMT
PPI data boosts Sterling
Sterling was trapped below the 1.95 level against the dollar in early Europe on Monday ahead of the UK data.
Producer prices continued to rise strongly in April with input prices rising 2.4% over the month with an annual increase of 23.3% which was the highest increase for over 20years as energy and food prices continued to rise.
There was also a stronger than expected monthly increase of 1.4% for output prices and, crucially, the core increase of 1.0% for the month was sharply higher than in recent months. This increase will increase fears that inflationary pressure is building within the economy which will make it more difficult for the Bank of England to cut interest rates. The data triggered sharp initial Sterling gains and will tend to provide short-term support to the currency even though the longer-term implications would be negative.
The consumer inflation rends will remain under close scrutiny on Tuesday and will trigger further volatility.
Published on Mon, May 12 2008, 10:19 GMT
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Daily FX Commentary
Fri, May 9 2008, 11:27 GMT
Market caution returns
Risk aversion has increased again over the past 24 hours. Equity markets have generally struggled over the past 24 hours with some retracement after the recent recovery. The Asian markets were also unsettled by weaker than expected results from US insurer AIG which renewed fears that credit difficulties could intensify again
There has also been some widening of credit spreads over the past 24 hours.
In response, there has been some renewed flight to quality with the Japanese yen and Swiss franc gaining ground. The Japanese currency pushed to test levels below 103.0 against the dollar while the franc strengthened to 1.04. The Japanese yen and Swiss franc also strengthened significantly against the Euro on Friday.
Published on Fri, May 9 2008, 11:27 GMT
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Daily FX Commentary
Tue, May 6 2008, 22:38 GMT
PMI data undermines Sterling
Sterling pushed to a high of 0.7765 against the Euro on Friday before a corrective decline to 0.7810 in New York as there was profit taking following the gains over the week.
UK markets were closed on Monday and Sterling weakened during the day with a decline to 0.7860 against the Euro while there was support below 1.97 against the dollar. Underlying fears over the housing sector will continue as surveys continue to suggest a fall in prices while mortgage stresses are also continuing.
The UK PMI index for the services sector was significantly weaker than expected with a decline to 50.4 in April from 52.1 the previous month. The weak figure will reinforce fears that the economy is slowing rapidly and there is likely to be some renewed speculation that the Bank of England will consider a cut in interest rates this week.
This speculation will tend to put Sterling on the defensive in the near term. The UK currency dipped to near 1.9650 against the dollar following the weak PMI survey before recovering back to 1.97 as the US currency was also struggling.
Published on Tue, May 6 2008, 22:38 GMT
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Daily FX Commentary
Fri, May 2 2008, 10:16 GMT
Dollar faces key payroll test
The dollar broke Euro support levels near 1.55 and pushed to highs beyond 1.5430 after the US data releases. There was a further unwinding of short dollar positions while long commodity positions were also reduced and these trends tended to reinforce each other over the day.
The US PMI data continued the trend for major data releases over the past few days as it was weak, but slightly stronger than expected. The index for the manufacturing sector was unchanged in April at 48.6 and compared with expectations of a small monthly decline and did not provide any strong indication of recession.
Elsewhere, jobless claims increased to 380,000 in the latest week from a revised 345,000 previously which will maintain some concerns over the labour market ahead of the key Friday employment report.
Confidence in a Fed pause will be much higher if there is a respectable payroll figure on Friday and there will be a big boost to dollar confidence if there is any figure above the zero level.
Published on Fri, May 2 2008, 10:16 GMT
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Daily FX Commentary
Mon, Apr 28 2008, 10:48 GMT
Dollar consolidation
The revised University of Michigan consumer confidence index edged lower to 62.5 for April from a provisional 63.2 which will maintain fears over the outlook for consumer spending. An important element in the survey was an increase in the inflation expectations component to 4.8% from 4.3% the previous month. This is particularly significant as the Federal Reserve will need to monitor inflation trends closely. The rise in inflation expectations will certainly intensify opposition from some Fed members to any further monetary stimulus.
There has been further speculation that the Fed will suspend interest rate cuts after sanctioning a further 0.25% cut at the April 30 meeting. This Wednesday’s FOMC meeting will, therefore, be an increasingly important focus over the next 48 hours, especially with no fresh data due for release on Monday.
The net shift in rate expectations will continue to provide some short-term support to the dollar despite major fears over the economy. Consolidation was a dominant theme on Monday ahead of key US events later this week with the dollar weaker at around 1.5650 against the Euro. The Euro dipped briefly after a weaker than expected regional CPI release from Germany.
Published on Mon, Apr 28 2008, 10:48 GMT
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Daily FX Commentary
Fri, Apr 25 2008, 10:45 GMT
Dollar correction
The dollar has continued to gain ground over the past 24 hours due to a combination of a shift in interest rate expectations and a squeeze on short positions
The US data was mixed on Thursday, but offered some degree of forward-looking optimism. There was no evidence of recovery in the housing sector with new home sales falling to a fresh 17-year low annual rate of 526,000 in March from a revised 575,000 rate the previous month while inventories continued to increase.
Headline durable goods orders also fell by 0.3% in March, but there was a 1.5% underlying increase which will trigger some hopes for stabilisation in the sector. Initial jobless claims also fell to 342,000 in the latest week from 375,000 previously.
There has been further speculation that The Federal Reserve would cut interest rates by 0.25% next week and then look for a pause in the rate-cutting process to assess economic trends. An adjustment in rate expectations will provide some degree of dollar support ahead of next Wednesday’s Fed meeting, especially with some reassessment of the ECB interest rate outlook.
Published on Fri, Apr 25 2008, 10:45 GMT
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Daily FX Commentary
Mon, Apr 21 2008, 10:38 GMT
Euro-zone tensions will be in fcous.
ECB members maintained a tough stance on inflation during Friday and this will tend to limit the scope for Euro selling in the short term. There was, however, evidence that global central bank Euro buying had eased significantly on Friday with a possible perception that the Euro offered little value at current levels.
Official comments on currencies will continue to be watched very closely this week. In particular, the possible divergence in commentary between the ECB and political figures will be very important.
The ECB will want to maintain a tough stance on inflation, but governments will be increasingly concerned over growth prospects. In these circumstances, there will be the increased risk of divisions between the two factions. Any serious tensions between the two sides would be a significant negative factor for the Euro.
Published on Mon, Apr 21 2008, 10:38 GMT
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Daily FX Commentary
Fri, Apr 18 2008, 10:46 GMT
Canadian dollar volatility
The Canadian dollar was unable to strengthen through parity against the US dollar on Thursday and weakened to lows near 1.0120 before rallying in early Europe on Friday. Volatility levels remained high with the currency retreating again to 1.0085.
Domestically, consumer prices rose 0.4% in March while there was a 0.2% core increase which pushed the annual rate down to 1.3% from 1.4%. The subdued core inflation data will reinforce expectations that the Bank of Canada can cut interest rates aggressively with a cut likely to be sanctioned next week.
The Canadian currency will gain support if risk tolerances remain higher. The Canadian dollar will also continue to gain near-term support from the elevated level of oil prices, but it likely to hit further tough resistance close to parity, especially with the risk that oil prices will correct sharply weaker in the short term.
Published on Fri, Apr 18 2008, 10:46 GMT
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Daily FX Commentary
Thu, Apr 17 2008, 10:27 GMT
Risk conditions dominate yen
The US currency retreated to 100.80 in European trading on Wednesday before rallying to 101.70 as the Morgan Stanley and Coca Cola results were better than expected. The yen was also subjected to significant selling pressure against the Euro.
Results from the US banks will remain under closely scrutiny over the remainder of this week and the yen will tend to weaken if there are above-consensus results, especially if there are further heavy debt write-downs.
Nevertheless, overall risk tolerances remained higher on Thursday and this maintained a weaker tone for the Japanese currency with the dollar challenging the 102.0 level against the yen.
Domestically, the monthly Tankan index weakened to a 5-year low for April which will maintain a lack of confidence in the economy. There are, however, reduced expectations that the Bank of Japan will cut interest rates in the near term and this may provide some degree of support to the Japanese currency. International risk factors will tend to dominate in the short term.
Published on Thu, Apr 17 2008, 10:27 GMT
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Daily FX Commentary
Wed, Apr 16 2008, 10:22 GMT
Test of G7 resolve
Despite more favourable US data releases, the Euro has challenged fresh all-time highs against the dollar with a move to 1.5950
The New York manufacturing index recovered strongly to a figure of +0.6 in April from -22.2 the previous month. Although the data series is very erratic on a monthly view, the sharp improvement will boost confidence that rising US exports will provide a cushion to the manufacturing economy. Headline producer prices also rose a stronger than expected at 1.1% for March and there will be increased speculation that inflation fears will trigger a more cautious Fed policy at the late-April FOMC meeting. In this context, Wednesday’s CPI data will also be watched closely.
The February TICS report recorded net long-term US capital inflows of US$72.5bn for the month after revised US$57.1bn previously. There was a drop in Chinese bond holdings, but overall bond inflows were robust while there were small net inflows into equities. The solid reading will provide some background support to the US currency and there will be some additional backing on valuation grounds given the severe decline over the past few months.
In the Euro-zone, the German ZEW index weakened significantly to -40.7 in April from -32.0 previously as companies were increasingly concerned over the inflation and growth outlook. There have also been increased protests from European companies with Airbus Industries warning that the position was severe
Published on Wed, Apr 16 2008, 10:22 GMT
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Daily FX Commentary
Mon, Apr 14 2008, 11:34 GMT
G7 will be tested on policy shift
At the G7 meetings late on Friday, officials announced a changed stance on currencies. The statement referred to the fact that members were concerned by recent exchange rate movements as they had potentially negative implications for economic and financial stability. The dollar was not mentioned specifically, but this was the clear target for the statement.
The evidence suggests that the Euro-zone officials were particularly keen on the change in rhetoric which was the first significant change since 2004. There were, however, also reports that protracted negotiations were required to agree the statement with the US and UK representatives reluctant to sanction the change.
The key factor now, therefore, will be whether there will be any action to back up the more aggressive verbal stance if the dollar continues to weaken. If markets suspect that more aggressive action will not be forthcoming, then dollar selling is liable to persist
Published on Mon, Apr 14 2008, 11:34 GMT
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Daily FX Commentary
Fri, Apr 11 2008, 10:17 GMT
G7 talks in focus
The G7 meetings will be watched closely on Friday and over the weekend given the potential for a significant impact on market trends. Two key themes are likely to be under discussion over the next few days. The most important element will be discussions on the global credit crunch and risks to the financial system.
G7 member countries will look at proposals to help ease global credit difficulties by relaxing collateral conditions in order to boost market liquidity. Any increase in confidence that the authorities can improve credit conditions would tend to boost risk appetite. This in turn would also tend to weaken the yen.
Comments surrounding exchange rates will also be watched very closely and there are likely to be important discussions between Euro-zone and US officials. A more robust stance in support of the dollar would underpin the currency. In contrast, any evidence of serious policy disagreements would risk further selling pressure on the US currency early next week
Published on Fri, Apr 11 2008, 10:17 GMT
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Daily FX Commentary
Thu, Apr 10 2008, 10:22 GMT
ECB Policy dilemma
The dollar was unable to make any headway through 1.5680 against the Euro on Wednesday and weakened sharply to lows beyond 1.5865 in US trade before stabilising.
The ECB will announce its latest interest rate decision on Thursday and the most likely outcome is that rates will be left on hold at 4.0%. If so, then the statement from ECB President Trichet will be very important for Euro sentiment. Markets will be monitoring official comments both on interest rates and the currency very closely. The ECB is still seriously concerned over inflation threats within the Euro-zone and the bank is likely to maintain a tough approach, although Trichet is also likely to issue warnings over growth trends which will curb Euro support.
The ECB President is likely to voice further opposition to excessive currency moves and the Euro will be vulnerable to more substantial selling pressure if there is more aggressive rhetoric against Euro strength, especially with G7 meetings starting on Friday. Volatility levels are likely to be high over the next 24 hours with the dollar temporarily pushing to record highs just above 1.5910 in Europe on Thursday.
Published on Thu, Apr 10 2008, 10:22 GMT
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Daily FX Commentary
Tue, Apr 8 2008, 10:45 GMT
Pressure on Bank of England
There has been some support from an improvement in risk appetite and gains in the UK stock market, but this is being over-shadowed by a continuing lack of confidence in the economy.
There will be further speculation over an interest rate cut at this week’s Bank of England meeting. Expectations of a 0.25% reduction in rates should have a measured Sterling impact, but speculation of a 0.50% rate cut would be more damaging. The shadow MPC committee of academic economists voted by a 6-3 majority for 0.25% rate cut at their weekend meeting, reinforcing expectations of an official cut at this week’s meeting.
Overall sentiment remains weak and Sterling weakened to 0.7930 against the Euro in early Europe on Tuesday with further selling pressure above 1.99 against the dollar. The latest HBOS house-price survey reported a 2.5% decline in prices for March which cut annual growth to 1.1% and will reinforce fears over the UK economy with Sterling weakening to 0.7970 against the Euro.
Published on Tue, Apr 8 2008, 10:45 GMT
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Daily FX Commentary
Mon, Apr 7 2008, 10:06 GMT
Market fears ease
Risk tolerances have continued to improve at the beginning of this week. Measures of credit risk have eased with the European iTraxx crossover index, for example, falling by around 20 basis points to levels significantly below the 470 basis point level, maintaining the decline from peak levels above 550 basis points at the time of the Bear Stearns collapse
Asian equity markets advanced on Monday and European markets also secured modest gains even though there was evidence of profit taking from initial levels.
While fears remain at lower levels, there will be an unwinding of safe-haven demand and demand for defensive currencies will also tend to ease. In this environment, the Japanese yen and Swiss franc have weakened. Market fears are liable to remain lower in the very short term on hopes that credit-related panic has eased even though the mood of caution will continue.
Published on Mon, Apr 7 2008, 10:06 GMT
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Daily FX Commentary
Fri, Apr 4 2008, 10:29 GMT
Dollar faces payroll test
The dollar pushed to highs near the 1.5510 level on Thursday in early US trade, but the dollar was unable to sustain the gains and weakened back to 1.57 on Friday
The US data was mixed and had a net negative impact on the UIS currency. Initial jobless claims rose strongly to 407,000 in the latest week from a revised 369,000 the previous week which increased fears over the US labour market. The claims data will certainly restrain optimism ahead of Friday’s payroll report.
In contrast, the PMI index for the services sector rose slightly to 49.6 from 49.3 the previous month. Although still below the 50.0 expansion threshold, the data will provide some optimism that further major near-term deterioration can be avoided, especially as the fiscal and monetary actions will not yet have had any significant impact on the economy. Markets were still leaning towards a 0.25% rate cut at the next Fed meeting rather than a 0.50% move.
Published on Fri, Apr 4 2008, 10:29 GMT
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Daily FX Commentary
Thu, Apr 3 2008, 10:10 GMT
Sterling headwinds
The UK currency has proved generally resilient over the past 24 hours with support close to 0.79 against the Euro despite generally disappointing data releases.
The UK PMI index for the services dipped to 52.1 in March from 54.0 previously which suggests a significant slowdown in the economy. The latest quarterly Bank of England survey also warned over a further tightening of credit conditions while corporate failures had increased.
Underlying fears over the housing sector and wider economy will continue to undermine confidence in the UK currency, especially as there will be additional pressure on the Bank of England to cut interest rates next week.
Sterling will gain some support if conditions within financial markets continue to improve. The serious reservations over the UK economic conditions will limit the potential for Sterling gains even if overall global risk tolerances remain higher.
Published on Thu, Apr 3 2008, 10:10 GMT
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Daily FX Commentary
Mon, Mar 31 2008, 10:35 GMT
Euro at pivotal point
The headline Euro-zone inflation data recoded a further increase to 3.5% from 3.2% the previous month. The increase in prices will maintain serious ECB concerns over inflation and the bank will want to retain a restrictive monetary policy.
While the Euro-zone economy appears to be holding relatively firm, the ECB stance will continue to support the Euro with hopes that the Euro-zone can de-couple from the US deterioration.
There are, however, still serious risks to this scenario. Although German data has held firm, the wider Euro-zone data has been less impressive with confidence continuing to deteriorate. There is a high risk of further divergence within individual economies and Spain, for example, is at high risk of falling into recession. There are also still major stresses within the Euro financial sector which will undermine confidence and drag the wider economy down.
If sentiment switches back towards fearing that the Euro-zone will be damaged by the US recession then the Euro will be vulnerable to heavy selling pressure.
Published on Mon, Mar 31 2008, 10:35 GMT
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Daily FX Commentary
Fri, Mar 28 2008, 12:54 GMT
Sterling still under pressure
The UK CBI retail survey indicated that sales were slightly stronger than expected in March. The expectations component was weaker and sales of durable goods was weak which continues to suggest an underlying weakening in spending. Consumer confidence also dipped further to a 15-year low of -19 in March from -17 previously which will reinforce fears over the outlook for spending while the Nationwide Bank reported a 0.6% drop in house prices for March with annual growth at a 12-year low.
Overall sentiment towards the UK currency remains weak with expectations of a series of interest rate cuts over the next few months, especially with evidence of further serious stresses in the mortgage sector. Sterling was holding around 2.0050 against the dollar in early Europe on Friday before retreating after the house-price data. Following the data, Sterling also weakened to fresh all-time lows near 0.7930 against the Euro.
The current account deficit fell to GBP8.5bn in the fourth quarter of 2007 from a revised GBP19.1bn previously which will provide some relief to Sterling, buy the 2007 annual GDP growth estimate was lowered and Sterling was unable to make any significant headway.
Published on Fri, Mar 28 2008, 12:54 GMT
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Daily FX Commentary
Tue, Mar 25 2008, 11:32 GMT
Housing data key for dollar
The dollar peaked just stronger than 1.5350 against the Euro as liquidity remained at reduced levels before weakening again on Tuesday.
US existing home sales recovered to an annual rate of 5.03mn in February from 4.86mn previously and inventories also fell which will increase optimism that a bottom in the market may have been found. There will, however, be further unease over price trends as there was an 8.2% annual drop in median prices over the year. While prices continue to decline, mortgage difficulties will certainly persist and could easily intensify. In this context, the latest US house-price and consumer confidence data will be watched closely on Tuesday.
A higher JP Morgan offer price for its Bear Stearns purchase also improved overall risk appetite. There will be some further speculation over potential G7 action to stabilise currencies through joint intervention. The US currency still weakened back towards 1.5590 in Europe on Tuesday as overall confidence in the economy remained frail while commodity prices recovered
Published on Tue, Mar 25 2008, 11:32 GMT
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Daily FX Commentary
Thu, Mar 20 2008, 18:39 GMT
Commodity correction boost dollar
Commodity prices have been a key influence over the past 24 hours. Following a push to record highs with oil peaking above the US$110 level and gold above US$1000 per ounce, there has been a sharp downward correction with both falling by around 10%.
Fund liquidation helped trigger a sharp downward move and there was also evidence of positions being unwound to boost US dollar liquidity ahead of the Easter weekend.
Commodity prices have been bought as a hedge against US dollar weakness and the sharp liquidation in positions also suggest that investors are now seeing some value in the US currency. There will also be relief that the Fed has managed to stabilise market conditions, at least in the short term. In this environment, a further squeeze on short dollar positions will be a possibility, especially if the global central banks look to encourage the correction through intervention.
The dollar will be in a stronger position to gain ground if there is any improvement in the US data flow later on Thursday.
Published on Thu, Mar 20 2008, 18:39 GMT
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Daily FX Commentary
Tue, Mar 18 2008, 11:21 GMT
Fed to trigger renewed volatility
The dollar strengthened back to highs just beyond 1.57 against the Euro on Monday from lows around 1.59, but underlying sentiment remained very negative as fears continued to dominate.
The US growth-related data remained very weak with industrial production falling 0.5% in February while the New York manufacturing index fell to a record low of -22.2 from -11.7 the previous month.
Given the financial and economic risks, there will be further speculation that the Federal Reserve will cut interest rates by at least a full 1.0% at Tuesday’s FOMC meeting. Indeed, there is some market speculation that the cut could be even larger than this.
A very aggressive rate cut would reinforce the dollar’s lack of yield support, but the measure could draw in longer-term capital on hopes of an economic recovery. The dollar will also gain support if there are co-ordinated moves to lower interest rates. The overall financial risks will remain high and quarterly results from the major investment banks will be under close scrutiny.
Published on Tue, Mar 18 2008, 11:21 GMT
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Daily FX Commentary
Mon, Mar 17 2008, 11:29 GMT
Bear triggers market panic
On Friday, Bear Sterns announced that it had secured emergency liquidity through the Fed’s discount window via JP Morgan. Rumours surrounding the health of the bank has been building for days and this undermined the liquidity position as credit lines were cut.
The markets were close to panic conditions on Monday as financial risk intensified. The sale of Bear Stearns to JP Morgan for US$250mn intensified fears over the scale of bad debts and there were further rumours of another round of write-downs.
The dollar weakened sharply to near 1.59 against the Euro in Asian trading before finding some support from additional Fed measures. The Fed cut the discount rate to 3.25% and also announced further measures to boost liquidity by increasing lending on its own balance sheet.
The Bear Stern difficulties will reinforce market concerns over the financial sector and undermine dollar sentiment, although it will also maintain expectations that the healthy banks and Fed are taking steps to manage the situation.
Markets will also remain on high alert over intervention in the short term. There will be some speculation over an emergency ECB meeting.
Published on Mon, Mar 17 2008, 11:29 GMT
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Daily FX Commentary
Fri, Mar 14 2008, 11:02 GMT
Pressure for intervention
With the US currency trapped near record lows against the Euro and at a 15-year low against the Japanese yen, the issue of potential intervention has become a much more significant market factor.
ECB president Trichet stated on Thursday that disorderly currency moves were unwelcome while he also stated that he was pre-occupied with excessive currency moves.
Japanese officials continued to voice concerns over currency movements with Finance Minister Nukaga stating that the market was being watched with great interest. The warnings still fell short of suggesting that intervention was imminent.
US Treasury Secretary Paulson has maintained the same position that he backs a strong dollar, although the comments have become more frequent.
The central banks will still be cautious over intervention, especially as failed intervention could increase the risk of aggressive dollar selling. At this stage, a more aggressive stance of verbal intervention is the most likely outcome, although the chances of intervention on Friday should not be ruled out entirely.
Published on Fri, Mar 14 2008, 11:02 GMT
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Daily FX Commentary
Wed, Mar 12 2008, 11:32 GMT
Fed looks to avoid meltdown
The yen weakened sharply in US trading on Tuesday following the Fed’s move to boost liquidity. Risk aversion has eased, at least temporarily, which triggered a recovery in high-yield currencies and triggered stop-loss yen selling. The Japanese currency weakened to 103.40 which eased immediate speculation over a dollar decline to the 100 level.
Domestically, the fourth-quarter GDP growth estimate was confirmed at 0.9%, which provided some relief, but the forward-looking data was less supportive. Consumer confidence was at a 5-year low while the Bank of Japan warned over downside risks to the economy. The government’s Bank of Japan Governor nominee Muto has been vetoed by the Upper House of parliament which will unsettle the yen to some extent, especially with current governor Fukui due to leave office next week.
The increase in global stock markets lessened immediate yen demand, but there was evidence of increased exporter selling and the US currency was testing the 103.0 level in early Europe on Wednesday. Underlying risk aversion is also likely to remain at elevated levels which will curb yen selling pressure.
Published on Wed, Mar 12 2008, 11:32 GMT
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Daily FX Commentary
Mon, Mar 10 2008, 11:31 GMT
Fed under pressure
US non-farm employment fell by a further 63,000 in February after a downwardly-revised 22,000 decline for January. This was the weakest figure for close to five years and there were further falls in manufacturing and construction employment. Most sectors were weak which suggests a wider downturn and this will maintain weak sentiment towards the currency.
There was a decline in the unemployment rate to 4.8% from 5.0%. The drop, however, reflected a sharp drop in the workforce as discouraged workers gave up looking for jobs while recorded employment fell which reinforced the weak data.
The data will reinforce recession fears in the US economy and maintain pressure for further Fed support measures. Governor Fisher warned the markets not to expect Fed action before the next scheduled meeting and he also stated that recent policy would not continue. The Fed did, however, announce that the auctions to boost market liquidity would be increased and widened in scope to help ease money-market tensions. This may curb immediate pressure for lower interest rates, but markets continued to price in a 0.75% Fed Funds rate cut in March with some speculation over a full 1.00% rate cut.
The dollar found some support weaker than 1.54 against the dollar in choppy trading, but conditions will remain very nervous in the short term
Published on Mon, Mar 10 2008, 11:31 GMT
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Daily FX Commentary
Fri, Mar 7 2008, 11:39 GMT
Credit fears increase
Risk aversion has continued to increase over the past 24 hours. Fears over the US economy were increased by a rise in housing foreclosures to record levels. Confidence in the US financial sector has also been weakened by a missed margin call from mortgage company Thornbury Mortgages.
Wider credit-related stresses have also increased missed a series of missed margin calls while there are increased fears over a forced liquidation of positions and continuing collapses of hedge funds.
As the range of instruments affected continues to increase, fears over an even more serious credit crunch than expected are increasing. In this environment, demand for the Japanese yen and Swiss franc has remained strong with the franc at record highs beyond 1.02 against the dollar while the yen strengthened to beyond 102.0.
The US payroll data will be watched very closely and another drop in employment would increase financial-sector fears. A solid report would rigger a sharp recovery in risk appetite, although selling pressure could quickly return given that underlying pressures will continue
Published on Fri, Mar 7 2008, 11:39 GMT
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Daily FX Commentary
Tue, Mar 4 2008, 11:25 GMT
ECB concerns increase
The Euro pushed to a new record high around 1.5270 against the dollar on Monday, but was unable to sustain the gains and dipped back to below 1.52.
There will continue to be fears over divergence within the individual Euro-zone economies, especially as the Spanish PMI index weakened to the lowest level for over six years. Spain and Italy are both at risk of recession in the near term and this will undermine confidence in the Euro-zone economy as a whole.
The Euro was pegged back by comments from ECB President Trichet who reiterated his strong backing for the US strong dollar policy. Euro Group head Juncker also stated that he was becoming increasingly concerned over the Euro while the IMF head called the currency overvalued.
A tougher official stance on the Euro would hamper attempts to secure further gains, although they will not be sufficient o trigger a significant reversal in the currency. The Euro stabilised around 1.5190 in Europe on Tuesday as depressed sentiment prevented more substantive dollar support.
Published on Tue, Mar 4 2008, 11:25 GMT
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Daily FX Commentary
Mon, Mar 3 2008, 11:33 GMT
AUD volatility to continue
The Australian dollar dipped sharply from levels around 0.95 against the US dollar on Friday as profit taking was enhanced by selling pressure against the yen as risk aversion spiked higher.
The Australian currency weakened to lows near 0.93 before consolidating above this level in local trading n Monday. The latest TD Securities survey recorded higher inflation expectations and markets are still looking for the Reserve Bank to increase interest rates on Tuesday. In contrast, markets are still very confident that US interest rates will be cut further. Yield support will remain strong for the currency even if the Reserve Bank of Australia leaves interest rates on hold. Nevertheless, the currency will be vulnerable to a substantial sell-off if rates are not increased by the central bank.
Increased risk aversion will undermine the currency and increased fears over a global downturn will also tend to be a negative influence.
The principal short-term feature is likely to be an increase in volatility and the net risks continue to suggest that the currency offers poor value above the 0.94 level and unchanged rates would risk a move to at least 0.92.
Published on Mon, Mar 3 2008, 11:33 GMT
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Daily FX Commentary
Fri, Feb 29 2008, 11:43 GMT
Yen at three-year high
The dollar weakened to lows near the important 105.0 support level against the yen in US trading on Thursday as the US currency remained under severe pressure while there was some evidence of defensive flows into the yen as risk aversion increased.
Domestically, the economic data failed to have a major impact with core consumer prices rising 0.8% in the year to January. Consumer spending 3.6% in the year to January while the unemployment rate held at 3.8% for the month. The data may offer some reassurance over the economy, although confidence will stay fragile and global conditions are liable to remain dominant.
Bernanke’s warnings over the banking sector increased risk aversion and this trend continued on Friday as stock markets were weaker while the poor results from AIG also undermined confidence. The dollar remained under pressure in European trading on Friday with lows near 104.0 which was three-year low for the US currency.
Markets will remain on alert for protests against currency strength by Japanese officials, although the evidence suggest that there may not be strong opposition until at least 102.0
Published on Fri, Feb 29 2008, 11:43 GMT
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Daily FX Commentary
Mon, Feb 25 2008, 11:32 GMT
Credit fears ease
Carry trades struggled to find direction last week due to divergence within the credit and stock markets. Global stock markets were generally firm, but there were increased credit fears with the iTraxx crossover index at a record high.
There were reports of a support package for Ambac late in US trading on Friday and this helped push Wall Street stronger
This trend continued in Asia and European trading on Monday with stock markets continuing to gain ground. Crucially, there has also been an easing of credit stresses. With credit and equity markets pointing in the same direction, there have been gains for carry trades with weakness in the Japanese yen and Swiss franc.
The favourable trend could continue in the very short term, but caution will still be a very important influence and aggressive selling of defensive currencies remains unlikely.
Published on Mon, Feb 25 2008, 11:32 GMT
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Daily FX Commentary
Fri, Feb 22 2008, 11:20 GMT
Recession evidence grips dollar
The dollar was unable to strengthen back through the 1.47 level against the US dollar on Thursday and settled close to 1.4750 ahead of the New York opening. US new Jobless claims were slightly lower in the latest week at 349,000, although the number of continuing claims increased which suggests that it is more difficult to find new jobs.
The Philadelphia Fed index fell again to -24 in February from -20.9 the previous month and there has been is a very sharp decline over the past two months. The index is now at a seven-year low and will reinforce fears that the US economy entered a recession in the first quarter of 2008. Leading indicators also fell for the fourth successive month with the data also suggesting recession conditions. The dollar dipped sharply following the data with lows around 1.4830.
These economic fears will increase pressure for more aggressive action by the Federal Reserve to cut interest rates and support the economy. The dollar will, therefore, also remain at risk in the short term as economic fears intensify. A key factor will be whether the fears are concentrated on the US or if there are greater concerns over the global environment. If international fears increase, then the dollar will be in a stronger position to secure defensive buying support.
Published on Fri, Feb 22 2008, 11:20 GMT
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Daily FX Commentary
Wed, Feb 20 2008, 12:13 GMT
Canadian confidence weakens
The Canadian dollar hit tough resistance close to 1.0030 against the US dollar on Tuesday and weakened sharply in North American trading. Headline consumer prices rose 2.2% in the year to January while the core rate fell to a 30-month low of 1.4%. There was also a sharp drop in wholesale sales of 2.9% for December which reinforced expectations that the Bank of Canada will sanction a further rate reduction in March. There could be some calls for a more aggressive cut given the weak economic data over the past week.
The Canadian currency will gain some support from initial strength in commodity prices, especially with oil back near the US$100 p/b level, although it is doubtful whether this strength will be sustainable.
The Canadian dollar will also tend to be undermined by the persistent credit-related fears, especially with fears that the US downturn will have a serious negative impact on the Canadian economy.
Published on Wed, Feb 20 2008, 12:13 GMT
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Daily FX Commentary
Tue, Feb 19 2008, 11:46 GMT
Credit fears continue
There has been a significant de-coupling of markets over the past few days. Equity markets have been generally firmer with solid gains in Europe on Monday while Asian markets were also firm on Tuesday.
In contrast, credit fears have remained at elevated levels with the European iTraxx crossover index rising to all-time highs at around 588 basis points which indicates elevated stress levels
Over the past few weeks, carry trades have generally been correlated with the performance of equity markets which have, in turn followed credit markets. The divergence now evident indicates the need for greater caution with equity and credit markets not moving as tightly in tandem. Investors are also looking at individual economies more closely.
The Swiss franc and yen have strengthened on Tuesday as the credit fears have tightened with the franc pushing back to near 1.09 against the dollar, although there has not been strong buying pressure for the week as a whole.
Published on Tue, Feb 19 2008, 11:46 GMT
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Daily FX Commentary
Mon, Feb 18 2008, 12:03 GMT
US recession fears increase
The dollar was unable to make any headway on Friday and weakened to test levels around 1.47 in New York. The US growth indicators were significantly weaker than expected with the New York manufacturing index falling sharply to -11.7 in February from 9.0, the weakest since 2005, and maintained the recent pattern of particularly weak manufacturing-sector surveys.
There was also a further sharp decline in the University of Michigan consumer confidence index to 69.6 in February from 78.4 the previous month which was a 15-year low for the index. The continuing erosion of confidence, despite a sharp drop in interest rates over the past month, will reinforce fears over the US economy, especially as a reading of this level usually signals a recession. Elsewhere, there was a 0.1% increase in industrial production for January.
The weak data will maintain pressure for the Federal Reserve to sanction further cuts in interest rates which will reinforce the lack of yield support for the US currency with markets pricing in further rate cuts. Dollar confidence will also tend to weaken if there is further evidence that Fed action is not having a significant beneficial impact, but this is liable to be offset by defensive US currency demand.
Published on Mon, Feb 18 2008, 12:03 GMT
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Daily FX Commentary
Fri, Feb 15 2008, 11:33 GMT
Sterling confidence fragile
Sterling pushed to highs around 1.9730 against the dollar during Thursday and touched the 0.74 resistance level against the Euro. The UK currency was still gaining some support from a reduction in market expectations over the scope for Bank of England interest rate cuts over the remainder of this year.
There were no major domestic developments during Thursday and the UK currency failed to hold the best levels as profit taking emerged. Sterling was also undermined by a renewed increase in risk aversion and persistent underlying doubts over the UK fundamentals, especially after the bank’s downbeat growth outlook in Wednesday’s quarterly report.
The UK currency was fluctuating around the 1.97 level on Friday with markets struggling to find fresh direction. Subsequently, Sterling weakened towards 1.9620 against the dollar and back towards 0.7480 against the Euro as markets questioned the UK outlook.
Published on Fri, Feb 15 2008, 11:33 GMT
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Daily FX Commentary
Wed, Feb 13 2008, 11:44 GMT
Growth fears stifle Australian dollar
The Australian dollar was unable to make a challenge on the 0.91 level against the US dollar on Tuesday and drifted slightly weaker in US trading. This trend continued in local trading on Wednesday with a retreat towards 0.9020.
Domestically, there was a decline in consumer confidence, maintaining the trend of weaker forward-looking indicators. Nevertheless, the Australian dollar yield support will remain strong which will provide important support, especially if there is a robust employment report.
The international risk factors will continue to be a key influence and fears over a more debilitating downturn in global growth will limit Australian dollar buying support. Overall, the currency is likely to face further selling pressure above the 0.90 level and weakened to 0.8970 in European trading as caution prevailed.
Published on Wed, Feb 13 2008, 11:44 GMT
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Daily FX Commentary
Mon, Feb 11 2008, 11:47 GMT
Risk aversion remains high
At the weekend G7 meetings, there were no major comments on exchange rates with members concentrating on the global credit risks and maintaining a similar statement on currencies to the previous meeting.
The lack of significant new comments on currencies will tend to undermine near-term yen support to some extent with reduced pressure for a strengthening of Asian currencies in general.
The impact should be measured with markets also focussing strongly on the global economic conditions. G7 members sounded generally cautious on growth prospects with US officials not sounding confident over near-term prospects. There were further effective warnings over the threat of further debt write-downs with some officials calling the next two weeks as crucial.
In this environment, investors are still likely to take a cautious stance with risk aversion at elevated levels while global stock markets are still generally weak. The yen and Swiss franc should continue to gain short-term support.
Published on Mon, Feb 11 2008, 11:47 GMT
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Daily FX Commentary
Fri, Feb 8 2008, 11:29 GMT
Bank of England caution
Sterling drifted weakened ahead of the Bank of England interest rate decision on Thursday with a dip to around 1.9520 against the dollar while the UK currency also tested 0.75 against the Euro. As expected, the Bank of England cut interest rates by 0.25%. The vote split will not be known until the minutes are released in two week’s time.
In the statement following the decision, the bank referred to a tightening of credit conditions and a slowdown in consumer spending. The MPC also warned over the inflation risks with a particular concern that rising energy and food prices could push inflation up sharply. The statement illustrates the fact that the bank would like to cut rates gradually to control inflation. The markets will not be convinced that this stance will be sustainable if there is evidence of a further deterioration in the economy.
Sterling weakened further to below 1.94 against the dollar in US trading as the US currency pushed stronger, but reversed losses against the Euro. The UK currency edged stronger in early Europe on Friday and held above 1.94 with a move back to 1.9480.
Published on Fri, Feb 8 2008, 11:29 GMT
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Daily FX Commentary
Wed, Feb 6 2008, 11:23 GMT
Global fears protect dollar
The Euro fell sharply to lows around 1.4620 on Tuesday, the largest daily fall of the year as confidence weakened, although a key feature was increased global fears. The dollar strengthened to highs just beyond 1.46 on Wednesday before some consolidation after the sharp gains.
The US PMI index for the services sector fell very sharply to 41.9 in January from 54.4 the previous month while the new composite index also fell substantially. An index around this level is consistent with recession conditions which will revive fears that the US economy is weakening sharply with a high risk of negative first-quarter growth.
The data is a negative dollar factor and will invite speculation over another emergency Fed interest rate cut. The US currency will secure further protection from fears that the damage is spreading to Europe while there is also the potential for capital repatriation back to the US.
Published on Wed, Feb 6 2008, 11:23 GMT
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Daily FX Commentary
Mon, Feb 4 2008, 11:49 GMT
Recovery hopes protect the dollar
The latest non-farm labour market report recorded a drop of 17,000 in January from a revised increase of 82,000 the previous month. There were further monthly declines for manufacturing and construction jobs while there was also a drop in government employment. This was the first net employment drop for over four years, although some caution is required as the last time there was a government fall, the data was revised up the following month. The unemployment rate fell to 4.9% from 5.0% while the average earnings increase was held to 0.2%.
The ISM index for the manufacturing sector rose back above the 50.7 level from 48.4 the previous month and there was a strong reading for prices. Other components were less favourable, but the data will ease fears over manufacturing to some extent. Construction spending fell by a larger than expected 1.1% for the month as the residential sector continued to contract.
The data overall will maintain uncertainty over the US economy and will provide some support for both the bullish and bearish interpretations of US trends. At this stage, the evidence of recession is not convincing, but dollar yield support is weak.
Published on Mon, Feb 4 2008, 11:49 GMT
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Daily FX Commentary
Fri, Feb 1 2008, 11:24 GMT
Pressure on BOE
Sterling found support below 1.9840 against the dollar on Thursday and pushed higher over the day. The UK currency again hit tough resistance in the 1.9940 region and settled close to 1.99. Sterling found support close to 0.7480 against the Euro on Thursday and edged stronger on Friday as ranges narrowed with a further attack on resistance levels above the 1.99 level against the dollar.
Consumer confidence edged stronger to -13 in January from -14, although this was still at historically depressed levels. The UK currency will gain some support if the economy appears resilient, especially as North America and European growth fears have increased.
The PMI report for the manufacturing sector fell to 50.6 in January from 52.9 the previous month which will increase fears over the UK economy and will increase pressure for a 0.50% Bank of England rate cut next week, but the immediate Sterling reaction should be limited.
Published on Fri, Feb 1 2008, 11:24 GMT
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Daily FX Commentary
Thu, Jan 31 2008, 11:49 GMT
Dollar battle continues
Following the latest FOMC meeting, the Federal Reserve cut interest rates by a further 0.50% to 3.00% with the discount rates also reduced by 0.50%. The Fed stated that there were downside risks to the economy while credit conditions had tightened and that the housing correction had deepened. The Fed also cited evidence of a weaker labour market for the further reduction in rates. There was a 9-1 vote with Fisher calling for no change. Following the cut, the dollar weakened to lows beyond 1.49 before correcting in choppy trading.
The advance fourth-quarter GDP report recorded a sharp slowdown in growth to an annualised 0.6% for the fourth quarter from 4.9% previously. The ADP employment report was more positive as it recorded an increase in jobs of 130,000 for January after a revised 37,000 increase the previous month which should help ease immediate fears over the labour market despite the Fed comments.
The dollar will, however, remain vulnerable on yield grounds in the short term, especially as the generally downbeat Fed assessment will maintain expectations of further cuts which will make it more difficult for the dollar to find a floor. The prospect for investment inflows should alleviate the pressure to some extent with direct investment flows continuing.
Published on Thu, Jan 31 2008, 11:49 GMT
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Daily FX Commentary
Wed, Jan 23 2008, 11:49 GMT
ECB under pressure
Following the Fed move to cut rates by 0.75% on Tuesday, market attention will now tend to switch towards the ECB. There will be increased pressure on the European central bank to consider an interest rate cut, especially as a co-ordinated move would strengthen credibility. The ECB rhetoric held firm in comments on Tuesday, although there were reservations over the growth outlook.
The Euro-zone PMI data was mixed as there was a small improvement in the manufacturing index over the month while the services-sector index fell to 52.0 in January from 53.1 the previous month. The net impact will be to maintain expectations of a steady slowdown in the economy and there has been further speculation that there will be another round of debt write-downs by the European banks. Overall confidence in the Euro-zone economy has weakened significantly.
ECB President Trichet also stated that the bank must be prepared to deal with a crisis situation which will reinforce expectations of a sharp slowdown in the economy. Euro confidence will also be dented by the inability to sustain gains against the dollar
Published on Wed, Jan 23 2008, 11:49 GMT
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Daily FX Commentary
Mon, Jan 21 2008, 12:04 GMT
Liquidation boosts yen
The dollar failed to hold above the 107.30 resistance level against the yen on Friday and was below 107 in US trading. The yen retained a firm tone in Asian trading on Monday and was holding around 106.65 against the dollar before gains to beyond the 106.0 level. The Japanese currency also gained increased support against the Euro with a move to 5-month highs beyond 155.0.
The attitude of Japanese investors will continue to have an important yen impact. Underlying caution over the global economy should provide firm support as yen moves remain correlated with trends in international stock markets.
The Nikkei index weakened sharply on Monday with a drop of over 3% and this will increase the potential for capital repatriation flows back to Japan which will continue to underpin the yen. Elevated risk aversion should continue to support the currency in the short term as fear maintains the dominant market factor. European equities fell sharply due in part to margin calls and this put strong upward pressure on the Japanese currency as carry trades were also liquidated.
Published on Mon, Jan 21 2008, 12:04 GMT
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Daily FX Commentary
Fri, Jan 18 2008, 12:28 GMT
Sales data undermines Sterling
Sterling remained more resilient on Thursday, pushing to highs near 1.98 against the dollar and 0.7420 against the Euro. There was a partial correction in US trading, but it still secured net gains on a wider correction from recent heavy losses. The UK currency struggled to hold above 1.97 against the dollar on Friday and then fell sharply after the UK data.
The UK retail sales data was weaker than expected with a 0.4% decline for December while there was also a decline in prices over the year which will maintain fears over a sharp slowdown in consumer spending.
There were mixed comments from Bank of Deputy Governor Gieve on Thursday. While he expressed considerable unease over the growth outlook on credit fears, Gieve also warned that there would be significant upward pressure on inflation over the next few months. There will still be strong confidence that interest rates will be cut in February, but with some increased doubts whether the bank will be able to cut aggressively over the next few months because of the inflation concerns.
Published on Fri, Jan 18 2008, 12:28 GMT
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Daily FX Commentary
Wed, Jan 16 2008, 11:24 GMT
Fear drives yen stronger
The yen pushed to a high of 106.65 against the dollar after the US data on Tuesday as Wall Street dipped sharply before settling close to 107.0. There was buying support on any retreats and the yen strengthened to a 30-month high near 106.0 in Asia on Wednesday.
Risk aversion remained at elevated levels with the Nikkei index continuing the trend of falling stock markets. With volatility levels also higher, there will be greater caution over carry trades which will help underpin the yen.
The Japanese machinery orders was slightly stronger than expected with the decline held to 2.8% for the month while wholesale prices were higher. Japan will not be immune to fears of weaker growth at the same time as higher inflationary pressure with consumer confidence at a 5-year low.
Markets will be on high alert over protests against yen strength from Japanese officials. A lack of comment would increase speculation that further yen gains will be tolerated by Japan and volatility levels will remain higher in the short term.
Published on Wed, Jan 16 2008, 11:24 GMT
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Daily FX Commentary
Tue, Jan 15 2008, 11:22 GMT
UK rate cut still on
Sterling strengthened against the dollar in early Europe on Monday, but again failed to break above the key 1.9650 resistance level and weakened back towards 1.9550 later in US trading as rallies were sold into. The UK currency also weakened to fresh all-time lows against the Euro at 0.76. The UK currency found support below 1.9550 on Tuesday with some marginal recovery against the Euro.
Overall sentiment towards Sterling has continued to weaken with expectations of a further economic slowdown. Any move to effectively nationalise the Northern Rock bank could reinforce negative international sentiment towards the UK economy with wider credit fears liable to persist.
Headline consumer inflation was unchanged at 2.1% in December compared with expectations of a small decline to 2.0% while the core rate was unchanged at 1.4%. The data should not have a major impact on interest rate expectations with markets still expecting that the bank will have scope to lower interest rates in February.
Published on Tue, Jan 15 2008, 11:22 GMT
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Daily FX Commentary
Fri, Jan 11 2008, 12:09 GMT
Bernanke damages dollar
The dollar was unable to sustain gains below 1.4650 against the Euro on Thursday and weakened sharply after contrasting remarks from Federal Reserve and ECB officials. The dollar dropped to lows beyond 1.48 and remained weak on Friday.
As expected, the ECB left interest rates on hold at 4.00% following the latest council meeting with Trichet taking a firm stance in the press conference following the decision.
In contrast, US Federal Reserve Chairman Bernanke, stated that further interest rate cuts may be required while the central bank was ready to take substantive action if required. The comments will reinforce market expectations that the Fed will sanction a 0.50% rate cut in late January and this will tend to undermine the dollar in the short term.
Some caution is required as there are a wide range of views within the Fed and there could be strong opposition to a 0.50% cut. Hoenig, for example, was more cautious over the need for further rate cuts, although he will not be a voting member in January.
Published on Fri, Jan 11 2008, 12:09 GMT
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Daily FX Commentary
Thu, Jan 10 2008, 11:22 GMT
Conflicting pressures on ECB
There was a further 1.2% drop in German retail sales for November after a 2.3% decline the previous month. Although the industrial orders data was robust on Tuesday, production also recorded a further 0.9% drop for the month while French industrial data was also weak on Thursday.
The weak consumer spending data this week will reinforce speculation over a sharp Euro-zone economic slowdown and will increase policy complications for the ECB. The most likely outcome is that the bank will leave interest rates on hold this week, especially as a policy change now would destabilise the markets.
The bank’s statement will be watched very closely for hints on future policy. The ECB will certainly want to maintain a tough approach on inflation, especially as it will want to influence wage negotiations. Nevertheless, the bank is also likely to be increasingly cautious over the growth outlook which would tend to undermine the Euro. Any change in rates on Thursday would trigger a large spike in volatility.
Published on Thu, Jan 10 2008, 11:22 GMT
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Daily FX Commentary
Wed, Jan 9 2008, 11:32 GMT
Canadian dollar stumbles
The Canadian dollar was unable to sustain gains through the parity level against the US currency on Tuesday and weakened to lows beyond 1.0050 in late domestic trading. Bank of Canada Deputy Governor Kennedy stated that downside inflation risks appeared to have risen over the past few weeks. The comments will increase speculation that interest rates will be cut again and this will tend to undermine the currency in the short term.
Commodity prices will be watched closely and any renewed increase in oil prices would offer support to the local currency. Nevertheless, the currency has struggled to find support so far in 2008 and elevated risk aversion is not a supportive factor. The overall risks suggest that the Canadian dollar will find it difficult to make any significant progress in the short term with tough resistance on any advances back through parity.
Published on Wed, Jan 9 2008, 11:32 GMT
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Daily FX Commentary
Thu, Dec 27 2007, 11:53 GMT
by Tim Clayton
Limited Sterling correction
Sterling weakened to fresh four-month lows against the dollar with a decline to around 1.9770 on Monday and again on Wednesday before a recovery. The UK currency was unable to make any impression on the Euro with a decline to record lows around 0.7310. Sterling secured limited relief on Thursday with pressure for at least a limited correction after recent sharp losses while fresh US currency vulnerability helping gains to 1.9900.
The anecdotal evidence on retail spending trends will be watched very closely in the short term and signs of strong initial buying in the sales period will provide some Sterling support, although the sales reports next week will be more important. Initial demand for high-yield currencies will also provide some UK currency support as carry trades enjoy near-term popularity.
Thursday's economic data will provide some degree of relief with BBA mortgage approvals rising to 44,800 in November from 44,300 the previous month while third-quarter equity withdrawal held above the GBP10.0bn level. Mortgage approvals still fell sharply from last year’s figure of 77,600 which suggests an important underlying slowdown in the sector with persistent fears that a housing deterioration will undermine the wider economy.
Published on Thu, Dec 27 2007, 11:53 GMT
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Daily FX Commentary
Mon, Dec 24 2007, 10:09 GMT
Inflation concerns underpin dollar
The Euro failed to hold above the 1.44 level against the dollar on Friday and consolidated around 1.4360 in New York. Trading volumes declined ahead of the weekend and the US currency held generally firm even though there was no challenge on resistance close to 1.43. The Euro strengthened marginally to 1.4380 on Monday in very light trading volumes.
There was a bigger than expected increase in US personal spending for November with the 1.1% monthly increase reinforcing the message of the retail sales data reported earlier in December. The University of Michigan consumer confidence index edged stronger to 75.5 in December from 74.5 previously and near-term spending evidence will remain under close scrutiny.
Markets are also maintaining a focus on inflation indicators following the higher than expected US consumer inflation data earlier in the December. The core monthly PCE inflation data was in line with expectations at 0.2%. The annual rate, however, increased to 2.2% compared with expectations of a 2.0% figure. The Fed has an unofficial 2.0% ceiling and the increase above this level will certainly create some unease within the Federal Reserve. Following the Friday spending and inflation data, expectations of a January interest rate cut edged down slightly which will provide some further near-term dollar support.
Published on Mon, Dec 24 2007, 10:09 GMT
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Daily FX Commentary
Thu, Dec 20 2007, 11:42 GMT
Caution over carry trades will protect the yen
The yen fluctuated either side of the 113.0 level against the dollar on Wednesday with a slight weakening bias in US trading while strengthening to beyond 163.0 against the Euro. There were no major changes in Asia on Thursday with the yen around 113.20 against the dollar before modest gains as underlying yen demand remained firm. The Chinese interest rate increase will help underpin the yen in the very short term.
As expected, the Bank of Japan held interest rates at 0.50% following the latest policy meeting. Mizuno, who has consistently voted for a rate increase over the past few meetings, joined the majority in voting for rates to be left unchanged and markets will not be expecting a near-term increase in rates which will maintain Japanese currency vulnerability on yield grounds.
The yen will still gain support on fears that sub-prime losses were spreading, especially after the ratings downgrade of bond insurers MBIA and Ambac Financial. These downgrades will increase fears over the impact of the credit crunch and a further series of downgrades. In this environment, there is an increased risk of a forced unwinding of leveraged positions which could strengthen the yen sharply, especially with tightening liquidity conditions.
Published on Thu, Dec 20 2007, 11:42 GMT
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Daily FX Commentary
Wed, Dec 19 2007, 11:30 GMT
ECB stance to curb Euro support
The US currency found support around 1.4430 against the Euro and pushed back to around 1.4380 against the Euro in European trading on Wednesday with the Euro seeing selling pressure above the 1.44 level.
The ECB sanctioned an additional and unlimited funding facility on Tuesday to ease the year-end liquidity fears. The bank allocated a huge US$501bn in a two-week funding operation at an average rate of 4.21%. The facility did succeed in lowering Euro market rates which will boost confidence that central bank actions are having some success.
Some of the funds secured could be switched into other currencies which will could have some negative impact on the Euro, especially as wider liquidity will run at reduced levels over the next few days. Institutio