Articles from November 2006



Pound eyes the $2 mark

Sterling rose to new highs against the dollar in the early hours of this morning, levels not seen since September 1992 when Britain was forced to abandon the European Exchange Rate Mechanism. Sterling is now set for its best yearly run since 1990 rising nearly 14% against the dollar so far this year.

The Fed’s Beige Book (Feds assessment of US economy) didn’t appear to provide much new information or direction on future policy which did little to support the Dollar.

Yesterday saw another volatile day of trading, with Ben Bernanke’s comments overnight doing little to stem further dollar sell off despite indicating inflation was ‘uncomfortably high’, implying further rate rises may be on the cards. Analysts indicated the lack of support for the comments may mean he’s in danger of ‘crying wolf’ over inflationary pressures.

Official data showed that US GDP grew at an annual rate of 2.2%, above expectation and gave the dollar some much needed rest bite against the Euro, rising for the first time in six days. However, this was short lived with the greenback falling to fresh 20 month lows later in the day.

The yen was boosted as Japanese industrial production data came in better than expected, heightening expectations the Bank of Japan may raise interest rates as early as December. Against the Euro it paired back losses up 0.3% on the day, with the dollar flat by the end of the days sessions after all gains were diminished after the US growth figures were released.

Traders indicated that current volatility in the FX markets have seen fundamentals take less of a preference as short term investors make a series of attacks on current key technical levels in Sterling/Dollar.

On the data front, focus today will be on European CPI out later this morning as well as Gfk consumer confidence out in the UK.

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.

Dollar shows further signs of weakness

Sterling was one of the main beneficiary’s against the dollar yesterday with the greenbacks general sell off throughout Tuesday plus the upbeat sentiment provided by the UK M & A activity. The worse than expected 8.3% fall in US durable goods orders for October sustained the downward pressure on the dollar taking it to new two year lows against the pound and reiterating sentiment that the US economy maybe slowing down.

Of the other US data out, existing home sales rose 6.24m in October, which exceeded market expectations giving the dollar a little rest bite. Consumer confidence surprised all by dropping to 102.9 in November, well below the estimated 106, which added to the majority of weak data out yesterday for the US and supported the bearish sentiment towards the dollar.

Gordon Brown indicated UK growth would exceed government’s forecast this year, whilst figures from the land registry showed that UK house prices have increased for October at their most rapid rate in the last 17 months.

Traders sighted the UK Scottish Power agreed takeover by Spanish utility firm Iberdrola as further support for sterling as it would be partly funded by £6bn cash.

The Euro continued to show strength on Tuesday as European policymakers attempted to dampen the impact of the recent rise in the currency. This was supported by data showing the eurozone money supply grew at an annual rate of 8.5% in October, well above the ECB’s 4.5% reference rate.

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.

Sterling hits two year highs

Monday trading saw the dollar fall to further lows against the Euro hitting levels not seen in 20 months and against sterling dropping to levels not seen for two years. This makes sterling one of the best performing currencies against the dollar this year, rising 12% since Jan.

Finding the exact source of the greenbacks downfall has been hard to pinpoint for the experts with falling interest differentials, worries over the US current account deficit and central bank diversification each being pushed as a possible candidate for the dollar weakness.

The Russian central bank however did comment yesterday that the Euro will remain its secondary reserve after the dollar. It reiterated it was not planning to diversify any further reserves away from the dollar.

The dollar did stage a comeback against the Euro on the back of dovish comments made by the French trade minister indicating any further rises may dampen economic growth. This was against the expected view of a rate rise by the end of March 07 with several ECB officials saying the central bank should be vigilant on inflation.

Today’s data and event schedule for the US is busier than yesterday with the Treasury Sec Paulson speaking on the markets at 9am this morning while the Fed’sBernanke, Plosser and Mosckow are all speaking on the US economic outlook early this evening.

With US consumer confidence for November out later today on the data front we should get an indication of the willingness to spend from our friends across the pond with some predicting marginal falls. In addition there are also figures on US durable goods and existing home sales which are all out later today.

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.

Dollar weakness dominates the headlines

The dollar suffered a dramatic slump on Friday and again over the weekend. Versus the euro, the dollar weakened to its lowest level since March 2005 at 1.3178 and against sterling a two-year low to 1.9465.

Market participants were trying to understand the reasoning behind this move. The consensus are focussing on a combination of unwinding of positions ahead of year end and comments from central banks diversifying their foreign exchange reserves all underlined by very thin trading volumes at the end of last week due to holidays in both the US and Japan.

Long dollar positions have been piling up this year against lower yielding currencies such as the yen. This move can largely be attributed to the market undergoing a natural correction.

Elsewhere against the yen the euro is currently over 152.0 after hitting a record high of 152.48. The market will take direction from Governor Fukui who is making several speeches this week.

The next two weeks’ economic calendar is fairly heavy. The market will focus on those indicators to confirm if the overall negative sentiment on the dollar should persist.

Fed Chairman Bernanke and Moscow will be speaking on economic outlook tomorrow. Key indicators from the US this week include new home sales, third quarter GDP, PCE report and ISM manufacturing index.

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.

Sterling powers to near 1.93

With the US and Japan on holidays the foreign exchange markets were a little subdued yesterday. This did little to stop the Euro though which surged to a high of $1.2975 against the dollar after a strong German business sentiment reading. The Euro fell back later after coming within a whisker of its 2006 highs of $1.2980.

This instigated further selling of the greenback adding to its losses from Wednesday, with the dollar dropping to Y116.20 against the yen equating to a two month low, falling to SFr1.2230 equalling a three month low together with Sterling rising to 1.9160 against the greenback nearing its 18 month highs.

Further dollar weakening against sterling this morning has seen it rise above $1.9280, levels not seen since early 2005.

Of the sparse news out yesterday, the Ifo business climate index rose to 106.8 in November compared to 105.3 in October, against analyst expectations of a fall to 105.2.

Focus today will be on the UK GDP Q3 2nd estimate release expected to be unchanged at 0.7%.

Elsewhere, Asian currencies rallied with talk of central bank activity halting the increase in local currencies against the depleting dollar.

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.

Dollar weakens against all major currencies

The US Dollar sold off sharply yesterday and continues to test lows this morning. Cable and EUR/USD got within touching distance of their year highs this year of 1.9180 and 1.2979 respectively. With US and Japanese markets closed today, trading is likely to be subdued, however if either of the above levels are breached, then we may be in for an interesting day in the markets.

Yesterday’s MPC minutes confirmed a 7-2 vote in favour of a rate hike on November 9th. David Blanchflower and Rachel Lomax voted for no change. This did little to affect sterling’s yield curve which pared back last week after the Bank of England’s inflation report and a number of other dovish releases.

Reuters this morning released a poll for UK interest rates taken before yesterday’s minutes but after last week’s inflation report. The median forecast for the poll showed rates staying on hold at 5% throughout 2007.

In the US yesterday weekly jobless claims came in at a very disappointing 321,000 (forecast 310k). Also released yesterday afternoon was the University of Michigan’s consumer sentiment which fell to 92.1 from 93.6 in October.

As we head into the last month of 2006 it is felt that the dollar is poised to break through this years lows against the Euro and Sterling and pave the way for a major move lower in Q1 ’07.

The dramatic weakness in the dollar at the start of Q2 ’06 and most of Q3 after the impact of 17 interest rate rises in row finally marked the end of the Fed’s tightening bias.

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.

Sterling powers ahead

The dollar sold off overnight, breaking stops at 1.9009 area in Cable and moved through to a high of 1.9064 this morning. In a week that lacks news, flows and economic releases, the move will be welcomed.

EUR/USD is also moving higher with a break of 1.29 needed to continue momentum. ECB President Jean Claude Trichet maintained his hawkish stance yesterday when he said that downward price pressure of globalisation had abated somewhat and hence central bankers need to remain alert.

Oil prices stayed above $60 a barrel which moved higher yesterday on the news of a sharp drop in output from the Trans Alaska pipeline due to high winds.

Today we have the release of the Bank of England MPC minutes at 9.30 this morning with expectation for a vote split 7-2 in favour of this months rate hike. In the afternoon in the US we see Jobless claims at 1.30pm and University of Michigan Confidence at 3pm.

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.

Currency converters have a quiet time

Monday kicked off the week with relatively little to report on the European front. Sterling managed to strengthen against the dollar and a number of the European crosses, while the Euro gained ground against the yen and continues to test record highs this morning.

In the United States we had the release of the Index of Leading Economic Indicators which confirmed the US economy will continue to grow at a slow rate. The number was below consensus forecast.

The main news this morning is in Asia where the yen continued to test record lows against the Euro as expectations for interest rate rises in Japan continued to be pushed further into the distance after central bankers met at the weekend. The yen hit a record low against the Euro on electronic trading platform EBS Monday at 151.68.

In the UK sterling was supported by money supply growth which came in close to 16 year highs. M&A; activity is also worth some focus as the London Stock Exchange rejected a proposal from Nasdaq for a merger.

The release of French GDP this morning came in at 0.0% for the quarter bang on expectation. With EUR/GBP seeing little change overnight, in fact we have seen an 8 tick range this morning! Today in the UK we have CBI industrial trends at 11.00 am.

Given a lack of major economic data ahead of Thanksgiving this Thursday markets are expected to be relatively range bound.

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.

Inflation worries weigh on currency converters

Once again Jean-Claude Trichet, President of the European central bank, called for strong vigilance on inflation risks, signalling interest rates are set to rise in the eurozone. Currently the European repo rate sits at 3.25% after the central bank raised rates from 3% on October 11th.

The ECB and the MPC are set to announce interest rates for the eurozone and the UK on December 7th. Interest rate expectations are fundamental to currency movements and since the FOMC stopped raising rates in the US, on 29th of June this year (after 17 consecutive 25 basis pts rises), expectation has become critical to reading currency movement.

According to Rightmove, house prices in England and Wales rose at their fastest annual pace in 2 years between October and November achieving a record high. These figures suggest interest rates have yet to have an impact on house prices and in stark contrast to last weeks dovish PPI, CPI, Bank of England inflation report and retail sales.

The market is starting to get a clear picture on European interest rates but is struggling to get a clear picture on UK rates due to the mixed nature of economic releases and the sharp pull back in energy prices. Interest rate expectation for the UK will be key to how sterling trades into year end.

Although cable probably follows EUR/USD higher, the important factor will be how sterling performs on the crosses with EUR/GBP being the critical pair. Currently the market is pricing in an interest rate rise in the 6 month area in the UK, the 2 months in the eurozone and no change in the US.

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.

Pound set for weekly drop following inflation report

The Pound is set to drop this week, breaking a four-week winning run against the dollar following signs U.K. inflation is slowing, damping speculation that the central bank will continue to raise interest rates into next year. The U.K. currency slid to its lowest in almost three weeks against the dollar after the Bank of England said that prices would slow sooner than it previously estimated.

Reports this week also showed consumer prices rose less than expected and unemployment gained to a five year high.

The Dollar rose this morning for a second day after U.S. data showed a slowdown in inflation and a rebound in regional factory activity, reinforcing views that the Fed will keep interest rates steady. The Dollar had slipped to a two and a half month low against the Euro and an eighteen month low against the Pound on expectations that the European Central Bank and the Bank of England would keep lifting interest rates.

Oil hovered above $56 in early morning trading today following its slide to the lowest level in almost a year due to mild weather forecasts in the U.S., combined with high fuel inventories and fund selling on commodities.

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.