POUND
The Pound fell to new lows against the Euro and U.S Dollar this morning after a sovereign buying account bought out a large amount of Euros for their month-end requirements.
CBI Industry data in the U.K was weak yesterday, putting further pressure on the U.K currency. “The CBI survey was pretty close to expectations which is why we did not have too much of a reaction on sterling,” said Adrian Schmidt, FX strategist at Lloyds TSB. “We heard some sovereign buyers in the euro/sterling cross which probably drove the euro higher.” The Pound was on the back foot in an otherwise thin trading range, with most traders still waiting on the Fed Chairman’s speech tomorrow in Wyoming for indications of the Fed’s intentions regarding QE and monetary policy. “As long as (sterling) trades below $1.6500 (against the USD), we expect a move to $1.63. However a short-term bounce cannot be ruled out and will most likely be seen as a selling opportunity by traders,” said Alejandro Zambrano, currency strategist at FXCM. The Pound had advanced to a 3 ½ month high on the Dollar last week, but was feeling some corrections this morning with confidence in the U.K economy dampened after a series of poor U.K data releases. “GBP looks to be playing `catch-up` to the downside this week, after a week of outperformance last week, that may have an underlying cause in corporate flow,” said RBC analysts in a note.
EURO
The Euro remained on the front foot against its main counterparts this morning, supported ahead of the Fed Chairman’s speech later that is expected to signal another round of quantitative easing and concurrent weakness for the Dollar. There was also support for the single currency against the Pound this morning after confidence in the U.K currency was down following a poor CBI report yesterday.
A sovereign account bought out a large amount of Euros in early trading, which is one of the main causes of increased Euro strength this morning. Whilst the Euro zone debt concerns still remain, the Euro was able to make some short term gains this morning but we could yet see a correction depending on the result of the Fed Chairman’s speech and U.K data releases which at present are doing little for the U.K currency to the Euro’s benefit.
US DOLLAR
The Dollar was under selling pressure this morning ahead of Fed Chairman Ben Bernanke’s speech in Jackson Hole, Wyoming later in the global day. If Bernanke uses the speech to signal further monetary easing and a fresh round of quantitative easing (money printing), the Dollar could be under pressure further, although much of this expectation is now priced in. “It is now possible that simply listing a range of potential future policy options without explicitly ruling out, in particular, additional QE, and which is indeed what we expect, will be considered worthy of a positive risk-market reaction,” strategists at BNP Paribas said. If this occurs the Euro and Pound could be set to gain further on the greenback, but the result is far from conclusive: “Should Bernanke sound slightly more upbeat than what is implied by a 2.25% 10-year yield, the U.S. dollar should find some support. In this respect, the bar is set relatively low” said strategists at RBC Capital Markets. All eyes will be on the speech later today to see if the majority of analysts’ expectations are met with risk to the downside for the Dollar. “We believe the Fed`s commitment to keeping policy rates low will re-ignite the USD`s trend depreciation and push the greenback lower especially against higher-yielding growth currencies,” said BNP Paribas strategist Steven Saywell.
