Sterling trades up into 1.20 against the Euro

June 4th, 2010 by Toby

Pound news:
The Pound is now back into more familiar territory versus the dollar as there is little data to go on to push Sterling forward. Halifax House Price data at 09:00 this morning could support Sterling if the numbers come out positive. However, this support is likely to be more evident versus the euro as opposed to the U.S dollar. Positive numbers from the U.S non-farm payroll count will overshadow any positive news for Britain.

Against the euro Sterling benefited from a late rally to push into €1.20 but once again was unable to hold this level for very long. As such, Sterling is currently trading at €1.1995 and is likely to bounce either side of €1.20 over the course of the day. Some data showing the positions hedge funds are taking versus the Pound has revealed that a small band of traders are betting that the U.K will have to default on its debt obligations. It is a brave gamble as the U.K has not defaulted on its loans since the reign of King Charles II in 1672. Even so, the news that some of those in the know are betting on the failure of the U.K economy should not be taken lightly.

After Halifax House price data there is nothing else on the macroeconomic front so any movements in GBP are likely to be driven by events elsewhere. As it is trading tends to be relatively calm prior to the weekend but U.S non-farm payrolls can be seen as a bit of a curve ball.

US Dollar news:
Trading between USD/EUR and USD/GBP is relatively calm this morning with the Pound registering a 0.11% change on the day at $1.4628 which is ever so marginally above $1.4608, the price at 16:30 London time yesterday. Ignoring the short term rally as a result of the Pru/AIG deal failure, Sterling has been hovering around the $1.46 levels for some time. The bias still remains on buying the dollar so we could see $1.45 re-visited.

Against the euro the Greenback is trading much stronger this morning at $1.2179. Yesterday the euro was well into the $1.22 levels but over the course of the day and over night there has been a heavy sell-off on the euro leaving it at near four-year lows. Trading in USD is likely to be subdued prior to 13:30 London time as U.S non-farm payroll data is released. Pre-emptive data has already suggested that a record number of jobs have been added this month. If this is an accurate forecast then post result trading is likely to warrant strong buy orders for USD. As a consequence Sterling and the euro will come under pressure heading into the weekend.

Canadian unemployment data is also out today which is keeping a lid on CAD/USD trading, so far the Loonie is inching ahead, up 0.04% so far at $0.9616. The steady flow of data from the U.S is beginning to reaffirm its status as relatively strong economy versus the U.K and eurozone

Euro news:
The eurozone is continuing to suffer in both the fixed income markets and the FX markets as traders and investors take a rather dim view of the single currency. Sterling is pushing ahead and maintaining its recent high levels, right now it has pushed through to €1.2008 but the real test is if it manages to hold this level.

The euro seems to be slightly more resilient to the advances of the U.S dollar as it has, for the time being, held $1.22. Once again this could all change if the U.S economy proves to be on track for a recovery.

An article in the telegraph has highlighted the rather precarious position the ECB may find itself in should the eurozone fail to get their act together. Given the level of funding the ECB has proved their exposure to eurozone assets is “bigger, by some margin, than its own capital and reserves”. The bond markets are now reflecting this negative sentiment as German/Spanish yield spreads are at their widest point. What is interesting to note is that opinions still differ hugely as to the outcome of all this. Many are still suggesting that a default and eurozone break up is ridiculous whereas others are saying that a default and break up is really the only solution. Until one is proved right or wrong the euro is likely to suffer at the hands of stronger economies.