Pound news:
Off the back of a well received budget report Sterling is continuing to rally in the FX markets as ratings agency Fitch said the “ambitious” plan ensured Britain would keep its AAA credit rating. This will come as welcome relief for Mr Osborne & Co as the U.K will still need to go to the money markets for bond issuances.
Sterling is finding €1.21 very difficult to break through as the high of the day shows €1.2107 with the current price just off that at €1.2091. If Sterling is unable to break and hold above €1.21 then I would expect tight trading ranges between €1.2070 and €1.2100.
Against the dollar Sterling is also edging ahead and firmly in the mid $1.48 levels, $1.4915 is the new high for the day having just broken through $1.49. Whether Sterling can hold above $1.49 when the budget cuts kick in remains to be seen but a rally of over half a percent on the Greenback should be well received in the City.
Trading against the Australian dollar has been quite volatile as of late with the Pound pushing into the AUD$1.73 levels last week. Sterling subsequently moved back down to a low of AUD$1.6969 today but has now pushed back above AUD$1.70 to trade at AUD$1.7043.
Quite interestingly, the MPC votes showed that one member voted in favour of a rate hike, this is some way off enough votes for a rate hike to take place but a change in monetary policy has to start somewhere.
US Dollar news:
Broadly speaking the dollar is down this morning as traders and investors re-adjust to various macroeconomic data and trim their positions accordingly. The initial euphoria over China revaluing the Yuan has faded as the move by the Chinese is not as significant as first thought. Furthermore, with many in the City assessing the U.K budget and euro zone problems still in focus the dollar is trading within ranges as investors weigh up risk sentiment in other assets over safety in the dollar. For the time being confidence remains with Sterling as it trades up 0.40% for the day at $1.4867. The same sentiment extends to the euro as it also trades higher on the dollar, up 0.11% at $1.2281, however the price last night of $1.2313 would suggest that $1.23 is a resistance level for EUR/USD.
Any potential dollar gains yesterday would have been cut short as existing home sales came in much lower than expected at 5.66M versus a forecast of 6.17M. Further down beat news is likely to come in the form of the Federal Open Market Committee deciding that rates should remain at the current low levels. Normally this would bring down the currency but given the global implications of a slowdown in growth the U.S dollar may actually benefit as investors move into the dollar as its safe haven status regains strength.
Euro news:
This may be the beginning of the end for the euro rally as it would appear the rally witnessed since early June is starting to run out of steam. Whilst “the medium-term picture for the euro is still bearish,” according to Ian Stannard, a senior foreign exchange strategist at BNP Paribas, the euro is showing some resilience against both Sterling and the dollar in refusing to give up ground. The euro is holding firm at the 0.8264 level and falls away from $1.23 are not happening as fast as some might have predicted, the current EUR/USD price is just two pips off $1.23.
Some news to the downside showed that Europe’s services and manufacturing industries slowed in June. Conversely consumer confidence was up to -17 when the market was looking for -19. Unfortunately this piece of data is not looked upon as highly significant.
There is no significant data for the euro zone today but the news on Monday that Fitch downgraded BNP Paribas will keep analysts occupied as they weigh up the state of euro zone banks. As it stands the general consensus is that the situation in the euro zone is worse than the EU ministers are letting on but for the time being the markets are growing bored of conflicting comments and are instead waiting for some concrete evidence of stability.
Quote of the Day
“A penny saved is a penny earned.” – Benjamin Franklin
