US Dollar:
The Dollar has weakened further today hitting new multi-month lows against sterling to 1.6875 overnight and moving within the familiar 1.50 level against the Euro. Investors saw Monday’s rally in U.S. stocks and oil as “an opportunity to keep pressing risk-seeking ideas and trades for the near term,” said Brian Kim, a currency strategist at UBS which saw the USD sold off as a consequence of this. In addition to this, FED chairman Ben Bernanke’s unusually commented on having a strong dollar which had a negative effect on the currency. He also highlighted that US interest rates will remain low for an extended period of time which instantly favours higher yielding currencies over the USD which looks to provide a lower return for a long period yet. Right now it looks as if the recent relationship the USD has experienced with risk is changing. Traditionally, good economic news out of the U.S. boosts global appetite for risk and encourages investors to sell the dollar with the reverse being equally true, poor economic news out of the U.S. has encouraged a return to safe havens and buying of the U.S. currency. In a scenario that still swings between risk aversion and risk appetite with the performance of equity markets–a key barometer of risk, the USD is now beginning to lose it’s safe haven status as proven in recent days. When US economic data has disappointed the currency has this time remained weaker rather than regained strength. The main US data due this afternoon includes the producer price index number and TIC Long term purchases (USD in and out flows).
Pound:
Sterling is trading at it’s strongest level since July against the USD and heading towards 1.13 against the Euro as the market favours riskier currencies including the pound. The market remains very much focused on what clues the BoE minutes may bring tomorrow, surrounding sentiment amongst the central bank and future monetary policy. We have recently had the release of UK CPI (inflation) data more supportive of sterling at 1.5% (against 1.4% expected) and a slightly better Retail Price Index number at –0.8%. This shows the change in the price of good and service purchased by consumers which is heading back towards a positive number from –1.4% last month. The probability of the UK returning to growth in the fourth quarter is back on the agenda with more economists expecting this to happen. This view was also supported by a member of the MPC rate-setting committee Andrew Sentance who said that “the economy had emerged from recession in the quarter between July and September, contradicting initial GDP figures published by the office for National Statistics (ONS) a few weeks ago. Next Wednesday we are due the latest “revised” GDP number for the last quarter which may well support this view and highlight an improved number to the negative recession figure we saw previously. In addition to the MPC minutes due at 9.30am tomorrow morning we are also due CBI industrial order expectations at 11.00am which will provide the latest snapshot of UK industrial data. For those wishing to avoid risk before tomorrow’s key UK economic data, today may well provide a good time to lock in a rate for some or all of your requirements amongst this unpredictable environment.
Euro: The Euro was down against the dollar and yen this morning as dovish comments from the Australian central bank and weaker regional share markets prompted investors to reduce their exposure to the riskier, higher yielding Euro and look elsewhere for gains. The current decline of the Euro can probably be attributed to sell offs arising from weaker equities and a fall in commodity prices – the single currency has been known to track commodity market changes. The Euro fell harder against sterling this morning, but that was in part down to strength of the U.K currency, currently performing well across the board. Investors looked to sterling away from the safer dollar as riskier assets and commodities are currently in favour.EUR/USD shows recent Euro weakness at 1.4937 while GBP/EUR favours sterling with a cent increase to 1.1286 currently.
Daily Quote
“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” – Helen Keller
