Dear Subscriber, Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements. Headlines • Pound still strong – government borrowing set to have fallen in July.
• Euro up as emerging markets recede – single currency absorbs inflows from volatile Asian currencies.
• Fed Minutes in focus – any clues on policy direction could have amplified influence on FX markets.
• GBP/CAD up 1 cent – GBP/NZD up 3 cents.
Sterling Sterling performed fairly well against the majors yesterday – bar the Euro – as the UK currency continued to ride the wave of optimism that has built up in recent weeks thanks to an impressive set of domestic data releases. There was little direct impetus to send the Pound higher, but with markets now pricing in an interest rate hike in 2015 – slightly sooner than previous estimations of a rise in 2016 – Sterling was still able to appreciate slightly against most of its currency peers yesterday. Later on today public sector borrowing data is predicted to show that the government ran a budget surplus of £5.0 billion during July, which should be interpreted as bullish for GBP. Euro The Euro grew by over half a cent against the Pound yesterday amid a strange combination of different factors. Eurostat reported that Construction Output rose 0.7% in June, improving upon June's score of 0.5%, but the relatively minor ecostat is not likely to have influenced such a large swing in sentiment.
With talk of Fed tapering proliferating around trading rooms risk aversion has kicked in and subsequently European equities and indices have stalled, however, the single currency has managed to stay afloat. One possible reason for this phenomenon is that the inevitable slowdown of Fed stimulus is driving investors out of riskier assets but with the Eurozone now out of recession, the Euro is no longer seen to be the uncertain investment that it once was. Asian currencies such as the Indian Rupee and the Indonesian Rupiah suffered severe declines yesterday as traders anticipated the removal of cheap Fed money from the system, and it seems that these emerging market currencies took the hit, leaving the single currency stronger as investors repatriated their funds in Europe.
In other economic news German Finance Minister Wolfgang Schaeuble said that Greece needs a third bailout package. The German Fin Min said that the latest aid deal will be smaller than the previous two, but admitted that a funding gap in Greece will warrant additional support over the next few years.
US Dollar Sterling rallied by around 0.2 cents against the US Dollar yesterday, appreciating for the fifth day out of six and coming within 50 pips of a 6-month high. Later today US Existing Home Sales are forecast to come in at 1.4% for July, improving upon June's -1.2% decline, however the medium-importance data release is unlikely to have a huge affect on GBP/USD. The Federal Reserve Minutes report on the other hand is likely to have a strong bearing on the cable pairing as investors scrutinise the Minutes for signs of a slowdown to stimulus. The US Dollar could claw back some of its recent losses if the report shows that policymakers are keen to taper the asset purchasing programme, but GBP/USD could break through resistance levels if little is said to suggest that QE3 will be altered in September.
Canadian Dollar As a currency strongly linked to the value of crude oil, the Canadian Dollar fared particularly badly on forex markets yesterday as demand for black gold receded in time to the beat of Fed taper speculation. With Canadian Manufacturing Sales already reported to have fallen by -0.5% and domestic Retail Sales expected to decline by -0.4% later this week the 'Loonie' succumbed to a one-cent drop against the Pound.
Australian Dollar The Australian Dollar weakened by around -1.2 cents against Sterling yesterday as the latest Reserve Bank of Australia Minutes report was seen to increase the chances of further interest rate cuts in the not-too-distant future. The RBA noted that further loosening was not necessary at this juncture, but the Australian Central Bank hinted that if the value of the Australian Dollar does not continue to slide then further rate reductions may be forthcoming. The dovish remarks negatively impacted the Antipodean currency.
New Zealand Dollar Sterling strengthened by around 3.0 cents against the New Zealand Dollar yesterday as stimulus worries led to an exodus of cash from perceived riskier assets. Hopes that the Reserve Bank of New Zealand may introduce a rate hike in the near future were dashed as the RBNZ announced that it was limiting the number of mortgages that banks are allowed to approve to consumers with low deposits. The macro-prudential policy decision means that a rate hike will probably not be needed to cool down the overheating housing market. If you need any further assistance, or require a live dealing quote - please do not hesitate to contact me on 01736 335250 or send an email to info@torfx.com Regards,
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