US Dollar:
The dollar continued its slide against the majors yesterday but the afternoon session did see the greenback level off in anticipation of the week ahead’s major financial announcements. The most important item on the agenda for markets this week is the Fed’s policy meeting Tuesday and Wednesday, during which the central bank is widely expected to unveil another leg of quantitative easing. What is in doubt, however, is the scale and time frame of its bond purchases. Markets are likely to trade in a relatively tight range until the decision is an¬nounced. If they come up with $2 trillion, they’re confessing that the US economy is in deep trouble. Recent US data has been strong and people may be right to think that the Fed will make a much more data dependant de¬cision. The scale of the program may be more modest than once thought. Jitters are also being seen ahead of US midterm elections as traders duck out of a lofty market. The dollar could push higher if Republicans emerge with strong gains in US elections as this would raise investors expectations of reduced fiscal spending.
No major data. Other News: Midterm elections.
Pound:
A good start to the week for the pound saw gains made against the dollar and euro as pressure on the greenback ahead of potential QE moves saw cable rally, and better than expected UK economic data saw gains in GBP-EUR. Sterling, now higher on the buck after hitting a two week high yesterday of $1.6089, is likely to consolidate with risks skewed lower, while investors await the Fed’s move and how it could impact the pound, which itself is vulnerable to weak UK housing data. What is still hanging around the neck of the pound is the prospect of QE2 coming when the BoE meets for its interest rate decision Thursday, although expectations have receded over the last week or two on the back of robust UK economic data releases. In the UK, a leading survey showed manufacturers enjoyed an unexpectedly good October. The Markit/CIPS manufacturing pur¬chasing managers index (PMI) improved to a reading of 54.9 from September’s 10-month low of 53.5, repre¬senting the index’s first rise since May and confounding economists predictions of a drop to 53.1. In addition, the rate of job creation was at its strongest since June, raising hopes that the private sector can offset public sector job losses. Data 09.30: Construction PMI 53.1 from 53.8.
Euro:
The euro’s recent performance against the majors has been a strong move to the upside, but as most market participants are aware, this seems to have been led by a weaker dollar, nothing else. The path ahead for the single currency seems to paint a similar story, as a continuing weaker dollar does seem on the horizon, and the only place for investors to park their cash other than the greenback, seems to be the euro. This is masking the deeper concerns which the euro battled through over the summer, and looks like those euro cracks will be hide for a while longer as QE2 appears to set sail this week in the US. This move is helping support the euro against its UK counterpart, but some time in the future we do expect the Southern European countries to yet again bring the euro back down to earth. This is the longer term view however, and may not happen until after the new year. Data 09.00: Final Manufacturing PMI 54.1 unchanged,
General:
• The Reserve Bank of Australia’s decision to hike its cash rate by 25 basis points to 4.75% triggered a rally in the Australian dollar and other risk sensitive currencies over night.
• Japan’s finance minister voiced discomfort Tuesday about the yen’s continued strength, calling the re¬cent appreciation one sided, and threatened intervention in the FX markets to weaken the currency.
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| GBP/USD | 1.6061 |
| GBP/EUR | 1.1515 |
| EUR/USD | 1.3947 |
| GBP/JPY | 129.42 |
| GBP/AUD | 1.6067 |
| GBP/NZD | 2.0934 |
| GBP/ZAR | 11.1894 |
| GBP/CHF | 1.5870 |
| GBP/CAD | 1.6233 |
| GBP/SGD | 2.0715 |
| GBP/THB | 47.92 |
| GBP/HKD | 12.4542 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker