US Dollar:
The Federal Open Market Committee’s rate decision and corresponding policy statement would prove a market-moving event for the financial markets yesterday. However, the influence the fundamental driver would exhibit over the US dollar was significantly different than the impact that we would note across the broader capital markets. To answer why we need to refer to the ever-sensitive S&P 500. While equities traders are just as savvy as their FX counterparts, the limitations to taking bearish positions typically streamlines the performance of the benchmark index to the prevailing sentiment, a rise in risk appetite encouraging buying and a rally while a slump in sentiment encourages broad selling. With this in mind, we take stock of the immediate rally to a four-month high directly after the policy authority released its assessment and the subsequent retrace¬ment that closed the session in the red. In contrast, the greenback’s response to the developments proved to be more permanent.
DATA : No major data to be released today
Pound:
The British pound struggled against most of its major counterparts Tuesday, the most notable exception being the dollar. This weakness can be attributed to the bigger-than-expected increase in the August budget deficit to a record 15.3 billion sterling. Fiscal responsibility has been a big selling point for the UK. In the next 24 hours, the BoE minutes will refocus another primary driver – interest rates. BOE minutes from its Sept 8-9 meet¬ing are due at 0830 GMT, although comments by BOE policy maker Andrew Sentance, who is pressing for a rate hike, raise the risk that the minutes could be more on the hawkish side. Also in Sterling news the pound extended losses against the euro in Asia after a 2-month low yesterday. The euro hit 85.13 pence, its strongest level since late July and is trading just on its upper Bollinger band on the daily chart at about 84.80 pence.
DATA : MPC meeting minutes
Euro:
Once again, it is difficult to separate the euro’s unique fundamental strength from the indirect influence the currency experiences from volatility in the dollar and underlying investor sentiment trends. However, we do know that there was significant event risk through the morning. Having far more influence that a mere indicator, Tuesday’s primary concern was the performance of the European sovereign debt auctions. Ultimately, the Irish, Spanish and Greek sales were fully subscribed (sold all the debt intended). This in itself is considered a positive development as it is signifies the absence of a crisis. However, the historically high yields and ambiguous pres¬ence of the ECB should preserve our scepticism. Tomorrow, the focus will remain on financial stability as Portu¬gal is set to auction. Take note, they increased their deficit assessment today.
DATA : No major data to be released today
General:
• Japanese officials must be encouraged by the rise in risk appetite – or at least the lasting advance of most currencies against the Japanese yen. This helps in the effort to lower the currency without having to resort to intervention. However, where are they looking specifically? USDJPY actually slipped back below 85 in the early Asian session and that impacts the rate with China.
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| GBP/USD | 135709 |
| GBP/EUR | 1.1792 |
| EUR/USD | 1.3316 |
| GBP/JPY | 133.27 |
| GBP/AUD | 1.6416 |
| GBP/NZD | 2.2187 |
| GBP/ZAR | 11.037 |
| GBP/CHF | 1.5606 |
| GBP/CAD | 1.6063 |
| GBP/SGD | 2.0842 |
| GBP/THB | 47.93 |
| GBP/HKD | 2.185 red-down; blue-up (snap shot) |
For more information or to get the latest spot rates contact:
John Paul Georgiou
Senior Foreign Exchange Broker