G-20 summit promises unified austerity measures

June 28th, 2010 by Toby

US Dollar news:
We head into the final few days of the month with trading on the quiet side with the majority of currencies little changed over the weekend. Against Sterling the U.S dollar is trading up so far by 0.07% for the day but the price, $1.5036, is slightly higher than where we were on Friday. Against the euro the same situation can be applied, EUR is down on the dollar for the day but the weekend move shows the euro has edged up ever so slightly to $1.2356.

The G-20 meeting proved little shock to the system, the financial overhaul bill for the U.S is moving closer to being passed but appears to be doing so without unsettling the equity of FX markets. However, the strength of the U.S recover is being questioned as rates remain low in the U.S “There seems to be a reawakening of concerns over how strong the U.S. upturn really is and that’s taking a toll on U.S. bond yields and the dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. For the time being the U.S dollar is moving ahead this morning as investors and traders question the outlook for the global economy.

The commodity lead currencies are all down on USD, CAD currently trading in the mid $0.96 levels, AUD also down by -0.28% for the day. Nothing of high impact on the data front but Personal Spending and Personal Income figures are both out at 13:30 London time.

Pound news:
Evidently the performance of the English football team shares no similarities with the Pound, despite crashing out of the world cup in disappointing circumstances Sterling seems to be holding strong against both the euro and USD. We left the Pound at €1.2140 and this morning shows that the weekend has strengthened our position to a current market price of €1.2163, however, trading on the day is registering a change of 0.00% so thin volumes so far. The GBP/USD price is also showing positive tones, the current price is not far from the close on Friday but the high of the day is showing $1.5070.

Unfortunately comments from the city suggest that the Pound is still being supported by the planned budget cuts with little else moving Sterling forward “Sterling remains relatively bid because the budget has eased credit downgrade concerns, but more positive momentum is needed for sustained gains above $1.50 versus the dollar,” said Audrey Childe-Freeman, senior currency analyst at Brown Brothers Harriman. Some technical analysis suggests that that the GBP/USD price has reached a high that could see a slight move down, likewise against the euro, according to Reuters “ traders said the market had started to feel a bit too long of sterling in the near-term and a small pullback against the euro was likely before further gains could be achieved.”

Euro news:
The event that was likely to move the euro was the G-20 summit, it has now been and gone with little by way of ground breaking developments. As was to be expected all nations agreed to strict plans to cut budget deficits, however they were hardly going to say anything to the contrary. The targeted debt reduction is likely to give the euro a boost for the short term, however, as growth prospects look more achievable in the U.S it is likely that EUR/USD will move back down. Michael Woolfolk, senior currency strategist at BNY Mellon in New York expects euro to drop to $1.10 by year end and parity with the dollar by the close of 2011. “Clearly, austerity is going to negatively impact growth. So you have faster growth in the U.S. and Canada and slower growth in Europe. This implies that, over time, the Federal Reserve is going to be more inclined toward tightening monetary policy than the European Central Bank, creating an interest-rate differential that will ultimately favor the dollar.

For the time being EUR/USD is trading in the mid $1.23 levels and currently at the high of the day of $1.2360 but the number of large speculators shorting the euro rose to 70,974 on June 22, from 62,360 a week earlier suggesting a downward trend is expected.