US Dollar: When support for a nations currency is voiced by its country’s representatives there is usually a benefit to its performance in the markets. Not so for the dollar right now, as U.S Treasury Secretary Geithner’s suggestion that a strong dollar is good for the U.S economy fell largely on deaf ears. The problem being it wasn’t backed up by G20 finance ministers, who failed to even mention the weak dollar, and the Obama administration, whose policies of expensive health reforms and another fiscal package to help the labour market should actually counter any strength in the greenback. Traders suggest any effort to stabilize the dollar would need to come from the Federal reserve and an early interest rate increase if needed. This is looking unlikely though, as their representatives haven’t exactly jumped forward to support the dollar. In fact, their stance is the opposite; that the economic recovery will be a slow one with subdues inflation pressures, calling for more time to strengthen monetary policies. Thus if this view is maintained in Washington, and the global appetite for risk improves, we could see more pressure on the dollar and weakening further.
Pound:
Sterling is trading down this morning against the majors losing over a cent against the Euro and two cents vs. The USD. The initial economic data released on the employment front was better overall with average earnings down (linked to supply and demand) but the claimant count change (number of people claiming benefits) looked better at 12.9K against 20.2k expected and the unemployment rate failed to hit 8% forecast coming in at 7.8%, showing less strain in the labour market. However what followed an hour later did little to support the pound. The quarterly inflation report delivered live over the internet by Mervyn King (governor of the BoE) was viewed by many in the market as dovish (implying looser monetary policy, lower interest rates and so on). Our central bank still seems to be very keen on creating a recovery aided by a weak currency which should in theory increase exports but in reality this approach is taking a long time to take effect. The fact our economy continues to look vulnerable and interest rates are so low is also deterring foreign investment, decreasing demand hence why we have seen a sell off. In recent times. Vassili Serebriakov, foreign-exchange strategist at Wells Fargo in New York said With the BoE’s continued ultra accommodative monetary policy, “the pound is clearly the weakest link” among major currencies, and should continue to weaken. Putting all negativity aside surrounding sterling for a minute there were some positive points about the BoE latest release for the future. King highlighted that recent asset (housing market) price increases were a reflection of the prospect of a real disaster (great depression) have been averted through recent actions taken by central banks globally and were not signs of another housing bubble. He also indicated an economy which will bounce back and with growth prospects improved it looks as if we are coming to the end of the recession about now.
Euro:
The Euro has risen against the dollar with recent stronger than expected Australian jobs data encouraging investors to buy riskier currencies such as the single European currency. With this data comes speculation in Australia that their labour market has moderated and rates may increase their in the near future. This in turn makes the prospect of buying AUD more attractive, and in turn the Euro as traders look to a more risk-sensitive currency for investment, away from the US dollar. Signs are that the Euro will show continued strength, with investors now looking at U.S economic reports including jobless claims to gauge the health of the economy there. If figures are better than expected stock markets worldwide could benefit, supporting the Euro even further. Euro zone data has also been encouraging of late, with better than expected industrial production figures helping to strengthen the Euro. President Trichet gives a speech in Frankfurt at 19.00 GMT today that could move the Euro for tomorrows trading. Strong data and a sense that the Euro zone economy is recovering well, ahead of the U.S has assisted the single currency, that on the back of sterlings decline yesterday and this morning has pushed GBP/EUR down to 1.1060 currently, with EUR/USD sitting under 1.50 at 1.4974, although movement to the upside over 1.50 today cannot be ruled out.
Daily Quote
“I have found that if you love life, life will love you back.” – Artur Rubenstein
