Currency markets future directions

US Dollar and Sterling should continue to improve against the Euro and Yen for the short term at least.

With the presumption being that the improvement in performance for both economies can be traced back to their recently acquired, more competitive exchange rates. 

Large moves in the next day or so, do look limited however, given the upcoming monetary meeting in Europe and the UK and given that much of the Euro’s recent weakness has been as a direct result of negative news from Greece. 

It has to be assumed that most, if not all, the bad news has been priced in by markets now and the currency might be set for a bit of a lift as it benefits from an increase in risk appetite. 

The Euro itself looks unlikely to surge however, given the likelihood of IMF intervention in Greece’s affairs and for those precious metal aficionados out there, it is worth noting that at present, Greece holds over 71% of its foreign reserves in gold, which at the end of December stood at just shy of $4 billion. Watch the gold price after the IMF have been in …..

Overnight the Reserve Bank of Australia surprised all but a few by leaving their official interest rates at 3.75 % against the expectation of a 0.25% increase, citing the lack of credible information so far on the effects of the previous increases, thus judging it appropriate to hold rates steady for the time being. 

The Aus$ dropped sharply on the release but stabilised on a later caveat from the RBA that if the economy continued to improve, as has been witnessed over the recent period, rates would need to be raised further. The currency held at around 88 cents versus the US$ but given the anticipated continued demand from China for global commodities.

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Currency Converter Services at Wise Money

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To order your foreign exchange holiday money cash deliveries in the UK for amounts less than £4,000, $5,000 or €5,000
Or for amounts of currency over £4,000, $5,000 or €5,000 please call 0845 389 3000 and ask for a no obligation, free consultation with theexclusive Wise Money business forex service or complete the online enquiry form

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The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Foreign exchange markets take a breather

Mostly sideways trading yesterday as Sterling and the euro failed to advance further against the US Dollar.

We did see a test of the key 1.70 level but if you blinked you may have missed it. US equity markets also struggled to find a direction swinging between gains and losses with the Dow Jones finally ending slightly up.

A pause is probably sensible now as news may materialize that the optimism is not warranted and the overheated markets will quickly retreat. We have a three-pronged event risk this week as we have the monthly BoE and ECB meetings on Thursday and also the payrolls report on Friday from the US. It seems the market will await further direction from these event risks.

UK July services PMI has come in at 53.2, up sharply from 51.6 in June, some way better than median forecast of 51.8. UK June industrial/manufacturing output data has come out at +0.5% m/m and +0.4% month on month respectively, stronger that median forecasts of flat and -0.1%.

So good news flowing from the UK economy this morning but the markets are yet to sustain a move above 1.70 on the USD or 1.18 on the euro.

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Sterling leads the way

Despite yesterday’s trading volumes being severely depleted resulting from the Bank Holiday across much of Europe and the UK; there was plenty of activity - both in the equity and the currency markets.

The Dollar dropped sharply in the Far East on heavy short covering in Euro/Dollar helped by rumours of strong buying from an Asian Central Bank.

The rate rose from 1.3170 to get to 1.3390 before settling at 1.3365 and dragged the other majors with it. Cable moved from 1.4665 to reach 1.4870 before easing.

Sterling however, has tracked higher again following a UK bullish article that appeared in the Telegraph in which the Lombard economist predicts that the UK Housing crisis will end by Christmas.

This will make today’s release of the March RICS housing market survey even more eagerly awaited with expectations of a slightly firmer figure from February’s -78.3% (the lowest figure in more than 30-years).

Survey data suggests that growth in enquiries and viewings have become more buoyant resulting in a modest uptick in sales although financing constraints combined with fears of unemployment continue to hold back any significant recovery in activity.

Sterling however has started this morning’s session on the front foot hitting a 5-week high against the Euro of 1.1198 Other UK data is sparse for the following 3 days with most figures of significance deferred until next week owing to the Easter holiday.

This leaves forex players again watching equity news for direction and we have already seen European markets open firmer with the early release of very strong Quarter 1 figures from Goldman’s.

The Dollar ought to recover some of its recent lost ground especially given North Korea’s comments that they are considering building their own light-water nuclear plant. This could very well weaken the Yen and send the cross back up through 100

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Currency converter regains forex faith

The dollar and yen remained softer, while the euro gained ground, after encouraging euro zone and US economic data and a higher open in stock markets helped investors' regain risk appetite.

Equities were helped by US retail sales figures that showed a 0.2 % monthly rise in October, in line with the market consensus. At the same time PPI was up only 0.1 %, below expectations for a 0.3 % rate.

The encouraging news helped further improve risk appetite among investors, who returned to selling lower-yielding currencies like the dollar and the yen in favour of the higher-yielding euro and commodities-based currencies.

On top of this, the euro was helped early yesterday by robust 3Q GDP data, which showed a 0.7 % quarterly gain for a 2.6 % yearly rate.

The data have powered up the euro against the dollar... and with central banks and sovereign wealth funds eyeing an increased allocation into euro-denominated assets, the latest euro zone releases continue to show no considerable drag on growth as has been the case in the US and UK.

Meanwhile, the Pound steadied out at significantly weaker levels against major currencies following a dovish Bank of England inflation report, which gave a clear hint UK interest rates will need to fall.

The BoE's inflation report forecasts showed that, if UK interest rates follow market expectations and fall to 5.1 % by the end of 2009, inflation will meet the BoE target rate of 2.0 %. If, on the other hand, interest rates stay as they are at 5.75 %, CPI inflation would undercut the target, coming in around 1.75 %.

November's BoE Inflation Report gives a clear signal that a series of interest rate cuts lie ahead. The timing of the move is uncertain, particularly given Tuesdays stronger-than-expected UK inflation data, but the dovish inflation report will spark talk that a move could come before February.

The Pound plunged against the dollar, yen and euro following the report as investors adjusted their expectations for UK interest rates.

The European single currency, in particular, hit a four-year high low sterling of 1.4010 The European Central Bank is not expected to cut interest rates for some months as inflation remains significantly above target.
Prices at the London open
GBPUSD – 2.0592
GBPEUR – 1.4025
EURUSD – 1.4679
GBPJPY – 229.28
GBPCHF – 2.3093
GBPAUD – 2.2910
GBPCAD – 1.9839
GBPZAR – 13.4263

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Are inflationary pressures in the UK beginning to diminish?

With the US markets closed for Presidents’ Day and many Asian markets closed for the Lunar New Year, trading has been extremely quiet in the foreign exchange market.

News from Japan, the UK and the Eurozone have been driving the dollar’s fluctuations and this is expected to continue for the remainder of the week since consumer prices is the only piece of notable US economic data on the calendar. The global trend of inflation has been lower and because of that, consumer price growth in the US may slow in the month of January.

Yesterday in the UK a written testimony by the Bank of England to the Treasury Select Committee reported that the trade weighted pound is overvalued and is expected to move lower to close the current account deficit. The BoE also noted that inflationary pressures has ebbed and have become unusually stable.

This follows last week’s report from the National Statistics Office that revealed a 0.8% drop in prices in the month of January. However the weakness in GBP did not last long as the market tries to figure whether the BoE will still raise interest rates in March.

Given the recent weakness in UK economic data, the odds for a rate hike are diminishing. All eyes will be on tomorrows BoE's minutes to see if the decision to leave rates unchanged was unanimous.

The Euro has started the new trading week on a firmer footing as technical traders continue to drive the currency pair higher after last week’s upside breakout.

The Eurozone economy has been exhibiting impressive strength for the past month and the currency’s latest movements reflect that. In the week ahead, the Eurozone economic calendar is far busier than the US calendar.

The majority of the market is expecting backward looking data such as French and German GDP to confirm the region’s improving growth and validate the central bank’s plans to raise interest rates.

The most important release of the week is the German IFO business sentiment report. Most of the growth that we have seen thus far has been driven by a rush of year end consumer spending ahead of the value added tax increase in Germany last month.

However now that the tax increase is in place, we might begin to see a moderate slowdown in growth that could take a toll on business sentiment.

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Inflation key focus for currency converters this week

The Bank of England’s quarterly inflation report released on Wednesday is expected to show January’s increase in interest rates will not be the last. The inflation report will provide BoE’s latest forecasts on growth and inflation. Official figures indicate that gross domestic product (GDP) and especially inflation are already running above the central bank’s previous round of predictions in November.

Data released last month showed the annual CPI rate jumped to 3.0 pct in December, taking the rate dangerously close to the 3.1 per cent mark, which, if it hits this level, would force BoE governor Mervyn King to write an explanatory letter to the Chancellor of Exchequer, Gordon Brown.

Inflation is however this month expected to have held close to the 10 year high, at 2.9 per cent, following last month’s 3 percent increase, the most since comparable records began in 1997.

The yen fell to a record low against the euro following the group of seven industrial nations meeting. The meeting in Essen, Germany, failed to persuade the U.S. and Japan to call for it to strengthen.

The currency also dropped against the U.S. Dollar and UK pound as investors in Japan, where the benchmark is 0.25 percent, sought higher yielding assets overseas.

Oil tumbled around one percent on Monday following Saudi Arabia’s oil minister signalled satisfaction with market conditions and some Asian refiners reported a rise in anticipated Saudi supplies next month.

Ali al-Naimi, oil minister of the world’s biggest exported and the cartel’s most powerful voice, said in an interview that the market was much healthier than before and that OPEC may not need to change output.

The Australian dollar was weak in early Monday trading after the central bank signalled interest rates will stay after inflation cools. The reserve bank of Australia cut its underlying inflation forecast for 2007 in its quarterly monetary policy statement released early this morning, say three increases to borrowing costs, up to a six year high of 6.25 percent eased price pressures.

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