Posts belonging to Category foreign exchange



ECB monetary policy left unchanged

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.
The ECB left monetary policy unchanged, as expected, with the refinancing rate remaining at 0.00% and the deposit rate at -0.4%. The euro briefly spiked higher after Mario Draghi said that there was no discussion, either on tapering the QE programme or extending it beyond the original deadline of March 2017.

Whilst sterling finished strongly on the euro, it wasn’t reciprocated on the US dollar, as strong US housing data released had the greenback soaring late in the session.

Portugal’s government bond yields at six week interst rates low

This morning, Portugal’s government bond yields are hovering near six week lows, ahead of a key review by Canadian ratings firm DBRS, out after the close of play today. Whilst this is slightly concerning for Portugal, they are expected to get through the test unscathed. If it were to be downgraded, it would fall out of the ECB’s QE programme.

Wise Money news to come

Today is fairly thin in terms of wise money news data, however we do have UK public finance figures out this morning. Whilst expected in lower than last month’s number, a lower figure shouldn’t dampen Sterling’s resurgence on the euro too much. Aside from this, most of the day will be spent interpreting the ECB press conference from yesterday, with many investors keenly watching Sterling/euro advances.

UK votes to Leave eu in BREXIT

After the UK’s vote to leave the EU following a very close sentiment, Sterling has weakened significantly- but is bouncing back from it’s lows.

UK votes to Leave eu in BREXIT

There is a factor of uncertainty within the markets which has caused a lot of major sell-offs. Further to this, GBPUSD has opened this morning at a 30 year low, representing a fall of around 10% from last night’s peak, after breaking through key resistance levels.

This volatility is emphasised by the fact that there has already been a 2% bounce back. Naturally, a heavily declining rate is being seen across other Sterling focused currency pairings.

For the rest of the day, Sterling looks to remain under a lot of pressure, as will EURUSD. The next main focus will likely be the contemplation of the aftershock and how to deal with the uncertainty that is sure to follow the referendum’s result.

Sharp reactions on the money markets

It was widely expected that a remain vote would be seen after all of the polls released and therefore, it comes as no surprise that the markets reacted sharply when the contradicting news came in this morning and last night.

Looking out to the rest of the day, it’s likely to be chaotic and busy in the world of trading. It’s not just currencies that are being affected either – we’re seeing huge risk off moves elsewhere, including within the futures and commodities markets, just to name a couple.

Further to the general impact, it would come as no surprise to see central banks tightening their financial conditions and cutting interest rates. We’re also likely to hear from the ECB soon. Politics will determine the long term cost and with David Cameron resigning this morning, there is yet another factor of uncertainty on this side of the Brexit.

Commonwealth dream for Brexit

Eurosceptics campaigning for the UK to leave the European Union dismiss the idea that “Brexit” would leave the country economically isolated and bereft of trade alliances.

Eurosceptics campaigning for the UK to leave the European Union dismiss the idea that
They point out that the UK’s links with the 53 nation Commonwealth, composed mainly of territories that belonged to the former British Empire- predate its membership of the EU.

And the Commonwealth itself is eager to stress the trade advantages that its members enjoy by virtue of belonging to the association.

As it opens its 24th summit in the Maltese capital, Valletta, which runs from 27 to 29 November, its place in the global trade landscape is a topic high on the agenda.

At least one influential senior Commonwealth figure from outside the UK argues that the country has no need to choose between the EU and the Commonwealth – it can have both.

With the eurozone currently beset by economic troubles, some commentators feel that the UK should turn away from its stagnating neighbours in favour of broader global trade pacts.

They are assisted in this view by statistics such as those produced by the organisation World Economics, which has a growth tracker showing that the Commonwealth has already overtaken the eurozone in its share of world economic output.

“The Commonwealth accounts for 2.6% more than the eurozone in terms of world GDP share,” states World Economics. “Economic growth in the Commonwealth has accelerated over the post-1973 period in sharp contrast to the EU.”

However, such comparisons can be misleading, since the Commonwealth is far from being a unified or homogenous bloc.

As the Commonwealth’s own website says, “Our countries span Africa, Asia, the Americas, Europe and the Pacific and are diverse – they are amongst the world’s largest, smallest, richest and poorest countries.

“Thirty one of our members are classified as small states – countries with a population size of 1.5 million people or less and larger member states that share similar characteristics with them.”

In fact, just six Commonwealth countries account for more than four fifths of all trade conducted by the organisation’s members. Apart from the UK, they are Australia, Canada, India, Malaysia and Singapore.

As things stand, the UK isn’t exactly giving any of these countries the cold shoulder. Earlier this month, the UK and India signed commercial deals worth £9 billion during a visit to London by India’s Prime Minister Narendra Modi – a visit seen as giving an important boost to the UK’s relations with the world’s fastest-growing large economy.

Other big Commonwealth economies are not badly placed either. Some Conservative MPs, including Boris Johnson, feel that the UK “betrayed” countries such as Australia when it joined the EU in 1973, but the Australian government doesn’t seem to see it that way.

“We share an extensive economic, trade and investment relationship,” says the Australian government website’s country brief on UK relations, before going on to list the evidence.

Investment is particularly strong: the UK is “the second-largest source of total and direct foreign investment in Australia”, while Australia returns the favour, with the UK also being “Australia’s second most important foreign investment destination”.

For its part, the Commonwealth stresses that countries benefit economically from belonging to the club. According to its Trade Review 2015, members’ combined exports of goods and services amounted to $3.4 trillion in 2013, “which is about 15% of the world’s total exports”.

“When both bilateral partners are Commonwealth members, they tend to trade 20% more, and generate 10% more foreign direct investment inflows than otherwise,” says the review.

“This ‘Commonwealth effect’ implies bilateral trade costs between Commonwealth partners are on average 19% lower compared with those for other country peers.”

So the Commonwealth does seem to confer economic benefits on its members.

FTSE 100 flat despite strong UK shop sales

Shares in the Next shop group rose after the retailer reported stronger than expected sales- but the FTSE was held back by falling mining stocks.

FTSE 100 flat despite strong UK shop salesNext said that full-price sales for the 13 weeks to 25 April climbed 3.2%, helped by April’s warm weather, and its shares rose more than 3%.

But after a mixed morning, the FTSE 100 was down 3.36 points at 7,027.17.

Mining shares pulled the index lower after Antofagasta cut its copper output forecast.

Shares in Antofagasta fell 3.4% and other miners also dropped, with BHP Billiton down 2.6% and Rio Tinto 1.6% lower.

Shares in Barclays slipped 0.75% after the bank announced it was setting aside a further £800m to cover the cost of settling an investigation into foreign exchange rate-rigging. Barclays also took a further £150m hit to cover payment protection insurance (PPI) mis-selling.

The top riser in the FTSE 100 was Weir Group. The company said first quarter orders from its oil and gas business were down 23%, but this was not as bad as expected and its shares rose 4.1%.

Weir also said it cut costs at its oil and gas business by a further £10m.

In the FTSE 250, shares in Greggs rose 3.3% after the bakery chain announced a £20m special dividend.

Greggs said the dividend would replace a previously-proposed share buyback.

The firm also reported a 5.9% increase in same-store sales in the 16 weeks to 25 April, beating expectations.

On the currency markets, the Pound rose 0.19% against the dollar to $1.5368 and slipped 0.04% against the euro to €1.3968.

Chinese exports drop as UK recovery gathers momentum

We start this week after a very volatile week for the currency markets.
Chinese exports drop as UK recovery gathers momentum
The US Dollar lost most of it gains after ADP job forecasts came out much lower than expected as well as poor manufacturing numbers earlier in the week.

However, the non-farm payrolls number that was out on Friday, came at a reading of 175k which was much better than expected.

That helped the Dollar claw back some of its losses against most currencies, specifically commodity backed currencies, which have amidst the commodity selloff, lost heavily.

The USD/JPY pair has been the most volatile as it has moved along a 7 percent range in the week.

The Yen clawed its way back under the 100 mark earlier in the week after Prime Minister Abe’s speech that outlined strategies for investors painting a rosy picture, which managed to provide the Yen with some support, though not so for the free falling Japanese equity markets.

The non- farm payroll numbers from the US, though positive, were revised downwards by 12k which adjusted the unemployment rate by 0.1% which now stands at 7.6%.

This has kept the greenback weak and under pressure from most of it’s counterparts in opening trade.

With mixed figures coming out of the US, investors are now less inclined to continue with the sentiment of the Fed cutting back stimulus in the near future, as markets price in the over-reaction to Bernanke’s announcement that the Fed will ease its asset buying programme measures as soon as July.

Last week was also a very positive one for the Euro, on the contrary, as it surged to a 3 week high and the EUR/USD pair trades at 1.32 this morning.

The ECB met on their usual meeting on Thursday and kept rates on hold and revealed a promising outlook on growth forecasts for the region.

Despite weak manufacturing numbers earlier in the week, the ECB decided not to proceed with any plans of negative deposit rates. We had German industrial production figures out on Friday which also came in better than expected, in the wake of which Angela Merkel has urged the rest of the Euro zone to ‘follow Germany’s lead on growth’.

Meanwhile, European stock futures have fallen amidst China’s export figures that sank to a 10 month low in May as a crackdown on fake trade invoices exposed weakness in global demand.

Reserve Bank of Australia cuts interest rates by 0.25%

Asian stock markets have gained for the second consecutive day as the Reserve Bank of Australia cut its benchmark interest rate by 0.25% to 2.75%.Reserve Bank of Australia cuts interest rates by 0.25%The Canadian Dollar also strengthened against most of its counterparts as a government report showed building permits rose more than expected in March.

The bank holiday in the UK left the Pound at relatively similar levels to closing trade on Friday as we open against the US Dollar at 1.5540, as Sterling faces heavy resistance just before the 1.56 level and has failed to break it in its recent surge.

Shop price inflation slowed sharply in April to its lowest level in over 3 years as retailers slashed prices to lure business activity, in the UK.

With a relatively quiet week for Sterling, markets look forward to Thursday’s Interest rate decision though it is likely to be of much consequence, as rates are expected to be on hold at the current level.

We start the week in the UK with the focus still on the big release on Friday’s US non-farm payrolls data coming out at 165,000 which was slightly higher above market expectations of 150,000.

On the back of this month’s US employment figures, the previous months’ numbers were also revised to a higher level (March revised to 138,000 and February to 332,000). This has reduced the unemployment rates in the US down to 7.5% which is the lowest since 2009.

The dollar had a brief yet volatile surge against all of its counterparts as markets have continued with the sentiment that the current policies of Federal Reserve’s quantitative easing program can be cut back at any time, as deemed fit.

The dollar surged against the Japanese Yen, most notably to a high of 99.15, and sitting at 99.35 in opening trade this morning as strong resistance takes over just ahead of the 100 level. With a fairly quiet economic calendar for today for the US, the markets continue to trade on news from Europe.

The Euro, on the other hand, after falling to lows of 1.3020 against the Greenback has managed to claw back some of its gains and stands at the 1.31 level.

The main reason for weakness in the euro was last week’s ECB announcement that interest rates were slashed by 0.25% to stand at a low of 0.5%.We had a release of European PMI index which was revised to 46.9 from 46.5 but that did not augur well for the troubled economy as growth remains below the crucial 50 level, as fear resurfaces that the bloc will fall into a further recession in the coming quarter.

Dollar struggles after poor US employment figures

It was a bad end to the first week of April for USA with initial jobless claims rising on Thursday and the Non-Farm Payroll figure coming in at 88,000 vs consensus estimates of 200,000 on Friday.Dollar struggles after poor US employment figuresThis singlehandily hit the stock markets, as a sign that stability has still not returned to America, and also weakened US Dollar to a low of 1.5362 on GBPvUSD, EURvUSD rose above 1.30 for the first time in over 3 weeks with GBPvEUR remaining relatively unchanged in the 1.17’s.

In the UK after last week’s better than expected Services PMI growth we have the UK Trade Balance on Tuesday that will show a larger deficit, as expected from George Osborne’s Spring Budget although Manufacturing and Industrial production is expected to show minimal growth versus February’s contractions.

David Cameron is travelling around the EU (Madrid, Paris and Berlin) to discuss a trade orientated plan for the 27 Member State this week with reformed spending controls to increase the attractiveness of the area and try to keep the European coffers under control.

In the US the earnings season gets underway this week with 1 Quarter figures being drip fed to the markets throughout the week.

Wednesday, sees the release of the FOMC Meeting Minutes from last month’s meeting which will give an insight into the panel’s thoughts on the US recovery and perhaps an insight into the end of their monetary stimulus.

Thursday will see initial jobless claims revision from last week to sit around 365k. Friday, US Retail Sales are expected to show minimal growth of 0.1% versus last month’s unexpected 1.1% figure.

In euroland– a quiet week ahead after Mario Draghi weakened the single currency last week on more negative, dovish notes on the outlook for the eurozone.

US retails sales upbeat boots wise money markets

Yesterday we had strong US retails sales which follows the positive payroll numbers from last Friday and continues the good run for US economic data.US retails sales upbeat boots wise money marketsThe positive feedback in retail sales was relatively surprising following higher taxes and an increase in gasoline prices.

The US Dollar strengthened on the back of the US data reinforcing the trend that good news for the US economy is translating to US dollar strength.

This would tie in with an expectation that the Federal Reserve on the back of more upbeat data will be more likely to withdraw or at least scale back stimulus sooner rather than later.

Risk sentiment has also been boosted on the positive data and the AUD is the other big winner in the markets pushing higher against its peers and also helped by better economic feedback from the Australian labour market.

The euro has been the big loser in the last 24 hours against the US Dollar and against the Pound.

Today we have the start of the two day EU council meeting at 5pm and the main topic will be a focus on growth strategy for Europe.

The thirst for growth is evident everywhere and is particularly pressing for the UK government as we approach budget day.

The debate in Europe will focus on the role of austerity and it will be interesting to see the feedback on this as it will be equally relevant for the UK.

In other news, the Japanese lower house has this morning approved Haruhiko Kuroda as the new Bank Of Japan governor with the upper house to vote tomorrow. The markets will now await the outcome and look forward to the April Bank Of Japan meeting.

Britain loses its AAA credit rating

After a difficult fall for Sterling after dovish BoE minutes were released the Pound started to strengthen on weaker than expected LTRO payments and an impending Italian election in the euroland.Britain loses its AAA credit ratingThen came the downgrade to the U.K.’s credit rating, from AAA to AA1 from Moody’s, during Friday’s trading session to spark another run on Sterling with the currency losing all gains against it major trading partners.

GBP/EUR stalled at 1.16 during the week and finished in the 1.14’s, with EUR/USD struggling to stay above 1.31 after a small range traded week and GBP/USD going as low as 1.5131.

A poor end to the week has spelled a difficult start during Asian trade for Sterling as the currency continues to struggle.

Chancellor George Osborne testifies about Banking Standards today to parliament with curve ball’s about the recent downgrade expected which will give him plenty to think about for his next statement in March.

Wednesday’s adjusted GDP figure is expected to remain at -0.3% in line with preliminary data from earlier in the month.

Over in the uS of A- after continued strength last week, markets have a few things to note this week.

Tuesday, US New Home Sales are expected to continue their positive rise.

Wednesday, Durable goods orders expected to show minimal growth at 0.2% from 1% last month.

Pending Home sales also expected to show growth at 1.6% versus a contraction last month. Thursday, the Initial jobless claims figure is expected to show a minimal fall and the GDP figures is expected to come in at 0.5% versus contraction last quarter.

Friday, sees the final Michigan Consumer Sentiment figure and ISM manufacturing index.

In euroland- after last week’s euro strength on German business Sentiment, the Italian Election has bought fears back to the single currency as the possibility of disgraced ex-PM Silvio Berlusconi returning to power could become reality today and possibly undo the austerity measure put in place by currency Prime Minister Mario Monti.

The election will be closely watch throughout the day and Monday evening as speculation and results emerge to indicate who will take the reigns.

Political events under the spotlight

Investors have few pointers to trade off following yesterday’s Bank holiday in the United States.Political events under the spotlightNevertheless, it looks like a risk off play is settling ahead of this weekend’s Italian elections, particularly in Europe.

ECB President Draghi’s speech to the EU parliament provided little catalyst to markets as he didn’t elaborate on his post ECB press conference in February.

The most significant remark was that he advised the G20 to employ “strong verbal discipline” on speaking about currency movements.

Despite the Italian election most risk measures appear to be well behaved, Equity volatility has continued to drop and gold prices have steadied after the recent sharp fall.

Under the spotlight today is a likely gain in the February German ZEW survey.

The money markets are range bound but it has been noteworthy that USD/JPY has struggled to maintain rallies above the 94.00 level, with upward impetus in the currency pair seeming to fade.

Remarks by Japan’s Finance Minister Aso that the administrations were not thinking of changing the central bank law at present or buying foreign bonds helped to weaken USD/JPY.

Though the G20 meeting successfully gave the all clear for additional Yen declines, a lot is in the price in terms of policy outlooks and any further JPY weakness is likely to be much more measured.

The Aussie rose slightly over night following the release of RBA policy minutes in February, emphasising inflationary outlook for the economy would afford options to ease policy further.

Specifically, mining industries and the labour market are the major worries for Australia, in which the restricted growth in commodity prices would weigh heavily on the economy.

The minutes have limited effect on the AUD as the content is largely in line with expectation.

Finally, Sterling hit a seven month low on the Greenback yesterday following comments from Martin Weale that the MPC wanted a weaker pound to boost export demand.

He said the Bank should hold off from counteracting any rise in inflation that is caused by a weakening exchange rate. “To do any different would be to veer towards deflation as a means of restoring equilibrium”.

The Pound fell 0.5% during Monday’s session to reach 1.5438 its lowest level since July2012 and 5% lower than where is started the year.