US Dollar:
The risk story which has dominated currency markets over the last few days seems to have subsided somewhat Tuesday, pushing the value of the dollar down significantly against both sterling and the euro. But it was not all doom and gloom for the greenback, as USD/JPY rallied with investors coming out of the more safe haven cur¬rencies and buying higher yielding and more riskier assets. As the yen is the king of the safe haven trades, the buck rose against its Japanese counterpart, but declined against the European currencies. Following Monday’s US data releases, which included a key housing index and a business outlook index from the New York Federal Reserve, with investors still not sure what the outlook for the US recovery is. Investors basically shrugged off the lacklustre reports and also Japan’s GDP numbers.
Data 13.30: Building Permits 0.58M unchanged & PPI m/m 0.2% from –0.5%.
Pound:
Sterling kicked off the week on a positive note as it took advantage of a sell off in the value of the dollar and weak support for the under-pressure single currency. GBP/EUR has been range bound of late, but the over¬all perception on the single currency has not been good, and the pound has been picking off the euro when risk aversion subsides. The 1.22 level was broken yesterday and we expect the pound to hold around the 1.20 lev¬els in the near term. Against the dollar, risk aversion waned leading to a rally in cable to push GBP/USD back over the $1.57 level—a gain of over one and a half cents, although sterling has slipped slightly this morning. Sterling is likely to see a bit of negative bias against the euro and dollar today if UK domestic factors come in on the downside. Today we have UK consumer price numbers which are expected to have eased slightly in July, but to remain well above the BoE’s 2.0% target. Despite the expected decline, BoE Governor Mervyn King will still have to write an explanatory letter to the Chancellor of the Exchequer George Osborne– the third such letter this year. Data 09.30: CPI y/y 3.1% from 3.2%. Tentative: Bank of England Inflation Letter.
Euro:
A drop in the value of the dollar helped EUR/USD trade higher yesterday as the return of risk in the mar-kets helped the single currency trade higher against the dollar and yen. We saw a gain in the euros favour of
over a cent against its US counterpart to push EUR/USD to $1.2870. It was not all plain sailing for the euro how¬ever, as the single currency still seems to be struggling to make any inroads against sterling, with the 0.82 level being tested yet again. There still seems to be concerns about Europe’s fiscal health and growth prospects, and investors will be carefully watching an Irish auction Tuesday to gauge demand for the bonds. Germany's ZEW business sentiment Tuesday is expected to stabilize in August after a three month decline as confidence re¬bounds.
Data 10.00: German ZEW 20.9 from 21.2 & E/Zone ZEW 10.6 from 10.7.
General:
• The yen weakened against the majors after a report on Fuji TV that Japan’s Prime Minister Naot Kan as BoJ Governor Masaaki Shirikawa will meet Monday. The report fuelled speculation they could move to tackle recent yen strength through measures such as monetary easing fro the BoJ. However the impact on currency markets was somewhat limited as traders awaited concrete details.
• Oil futures are rebounding after five straight days of losses, but trading is subdued due to concerns over the strength of the global economic recovery with the price trading at $75.36 a barrel.
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| GBP/USD | 1.5655 |
| GBP/EUR | 1.2175 |
| EUR/USD | 1.2846 |
| GBP/JPY | 134.37 |
| GBP/AUD | 1.7351 |
| GBP/NZD | 2.20112 |
| GBP/ZAR | 11.33505 |
| GBP/CHF | 1.6239 |
| GBP/CAD | 1.6265 |
| GBP/SGD | 2.1231 |
| GBP/THB | 49.64 |
| GBP/HKD | 12.1563 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker
j \john.georgiou@voltrexfx.com