US Dollar:
It may come as a surprise to many fundamental traders that the market has built up considerable stock in Tuesday afternoon’s central bank announcement. To the novice, this would seem a non-event because the group has shown very little inclination to change the benchmark lending rate. This is certainly true. Even the intermediate market participant would likely come to the same conclusion as there has been little guidance by the policy group to suggest they will expand their stimulus efforts. However, the experienced fundamental trader knows not to use economic probabilities alone but rather, you align the likely outcome with the prevailing convic¬tions of the crowd. This past Tuesday, we marked a sharp drop in the US dollar that was unaccompanied by a concurrent rally in investor sentiment. Needing an explanation for this move the greenback playing catch up to the positive bias capital markets had developed the previous two weeks was not sufficient apparently, the finan¬cial media jumped on the building speculation amongst analysts and market participants that the Fed would expand its stimulus program beyond its current $2 trillion cap. The need for such a policy expansion is question¬able at this point in time.
DATA : FOMC Statement, Fed fund rate and Building permits.
Pound:
The UK housing sector deteriorated and the money supply contracted according to macro data re-leased on Monday. Notably, mortgage approvals for August dropped to a 16-month low and the Rightmove House Prices indicator contracted for a third consecutive month but this aren’t top concerns. Today’s public fi-nance numbers on the other hand are. House prices have now given up nearly half of the 7% gain in asking prices seen in the first half of the year, and if the currency trajectory continues house prices could end up being flat for the year. While Rightmove have said the number of new properties coming onto the market has begun to decline, which should ease the oversupply that has been suppressing prices, November and December are traditionally quiet months so an uptick in house prices may prove to be difficult.
DATA : Public sector net burrowing
Euro:
It was hard to establish a clear bias on the euro Monday because so many of its counterparts were fol-lowing their own agenda namely the US dollar, Swiss franc, British pound, Japanese yen and Aussie dollar. That being said, the developments that we would see through the session weren’t very encouraging. On the one hand, we would see Fitch affirm Germany’s top rating and France lowered its deficit/GDP modestly to 7.8 per¬cent. However, it is far more concerning to see the Bundesbank warning that Germany’s banks’ earnings out¬look was deteriorating and the ECB had to buy another 323 billion euros of government debt last week. The euro could take control of its own future tomorrow (before the FOMC at least) with Spain, Greece and Ireland set to auction bonds. Don’t expect the full subscription not to be met; rather watch yields.
DATA : No major data to be released today
General:
• The RBA’s minutes were expected to carry considerable weight early Tuesday morning but the Aussie dollar had already found its pace from comments issued by Governor Glenn Stevens on the previous day. With a defacto hawkish bias the group’s statement was already put into perspective. Suggestions of slightly stronger domestic conditions and higher resource sector potential clearly paved the way for fu-ture hikes.
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| GBP/USD | 1.5535 |
| GBP/EUR | 1.1880 |
| EUR/USD | 1.3079 |
| GBP/JPY | 132.61 |
| GBP/AUD | 1.6416 |
| GBP/NZD | 2.1331 |
| GBP/ZAR | 11.054 |
| GBP/CHF | 1.5595 |
| GBP/CAD | 1.5982 |
| GBP/SGD | 2.0703 |
| GBP/THB | 47.57 |
| GBP/HKD | 1.2051 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker