Foreign Currency News Updates

Pound:
All eyes on the election as crunch time gets ever closer. One thing is for sure in that the threat of a hung parliament is very much still on. One thing that is not so clear is what effect it will have. The first school of thought suggests that a hung parliament will cause Sterling weakness as the elected party will not have the authority to make sweeping changes needed to improve U.K finances. The other school of thought is that a hung parliament won’t actually have a detrimental effect for two reasons, firstly Sterling weakness will aid the recovery for our exporting market so outright strength is not a priority and secondly that each party has agreed to work together on monetary and fiscal issues regardless of who wins. Looking at the markets suggests that the markets are not all too concerned about potential Sterling weakness as Sterling gets off to a strong start, up 0.81% against the euro and testing the €1.1600 levels, currently at 1.1576. The same can be said for GBP/USD as the pound trades in the mid $1.54 levels having touched a high of 1.5496. So far macroeconomic data paints a mixed picture, promising signs are emerging in the form of inflation and house sales etc but relatively speaking growth is too weak to get excited about for the long term. Volatility is the order of the week.

US Dollar:
The dollar is likely to strengthen in the coming weeks as the demand for carry trades decreases as central banks keep interest rates at all time lows in order to maintain growth. Seeing as there is small benefit in selling one currency in order to invest in higher yielding assets, many investors are now looking at U.S treasuries. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation’s record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.

In the past the dollar has benefited from being the currency of choice as the market panicked about the eurozone. As risk aversion decreases the dollar may suffer as traders sell the greenback for riskier euro based assets. “The alleviating of financing stress in Europe should reduce the risk aversion bid for the dollar that emerged last December and lead markets to return to dollar funding of carry and risk trades,” strategists at Zurich-based Credit Suisse Group AG wrote in an April 13 report.

Against Sterling the dollar starts weaker down 0.67% this morning at $1.5477. $1.55 looks to be the next key level for GBP/USD. Against the euro trading is much more muted with current levels flat on the day so far. There are mixed signals for this pair as many are still holding firm for euro weakness to $1.20 whereas news of a Greek bailout is causing some analysts to predict euro strength. On the day we are at $1.3379, but the euro is starting to slip.

A quiet day for the U.S on macroeconomic data today, one to watch out for is oil prices which can move the dollar when news is not forthcoming.

Euro:
In my opinion the debacle surrounding Greece has gone on long enough as this morning sees Greece under pressure in the bond markets as investors show little faith in aid plans so far. Despite officially asking for aid on Friday, investors are clued up on the situation and as such are aware that current funding levels will not be sufficient in the long term.

The euro seemed to holding its own, at least against the dollar, but is now subject to heavy downward pressure across the board. Sterling is marching on towards the €1.16 levels and likewise for the dollar as a percentage change of -0.01% at 09:00GMT has now turned into -0.33% for EUR/USD. As I have mentioned before, the activities in the bond markets are a precursor for euro movements; this morning is no different as eurozone bond yields continue to widen vs the German bund. The strain on the eurozone can only go so far before something snaps and Germany, namely Angela Merkel, looks to be the first to go. The Germans were and are opposed to a bailout, suggesting it should be a last resort, however Greek funding looks to be under way much earlier than expected, forcing German co-operation very much against their will.