US Dollar:
Wednesday’s gains in Wall Street came after a big rally last week in stocks as investors increasingly factor in indications that the threat of a double dip recession is waning. Risk appetite has increased to see the dollar sold off against the majors, except the yen where we have seen dollar strength. We have seen evidence of the US hitting a soft patch recently, but there continues to be this relief that the economy doesn’t appear to be heading back into recession—at least not right away. This combined with more tax cuts and infrastructure spending plans by the Obama administration had traders in the mood to buy up. The dollar has fought back somewhat against the pound since yesterdays highs in cable, as the Fed’s Beige book showed signs the US economy's recovery, has continued, but July saw slow down and the housing sector is continuing to suffer. This has seen the dollar make back some losses against sterling and push back towards the $1.54 level. Today play¬ers will look towards the US weekly jobless claims due for further clues about the strength of the US economy.
Data 13.30: Trade Balance –47.4B from –49.9B, Unemployment Claims 470k from 472k.
Pound:
Sterling performed well yesterday as we saw a return of risk back into the markets which led to a sell off in the value of the dollar to the benefit of the pound. Stock markets rallied both in Europe and the US, which continued into Asian trade. This saw the usual gains for the so called higher risk currencies, which sterling is one. We also saw a gain for sterling over its European counterpart as GBP/EUR gained over one and a half percent on the euro. This pushed GBP/EUR from 1.1999 to trade over 1.2180, with only a small pull back this morning. The story doing the rounds with troubled Anglo Irish Bank has helped weigh the single currency down, as the perception is Ireland is back in the spotlight struggling with its finances. However, this recent sterling strength should be viewed with caution, as economic data from the UK is always just around the corner to give the pound a reality check. A report from the NIESR said that British GDP in the three months to August slowed sharply to 0.7%, compared to 1.3% in the three months to July. They also said the rate of growth will continue
to decelerate over the coming months. Today we have the Bank of England interest rate decision, expected unchanged at 0.5%, with no expectation of an increase in QE , currently £200bn. Data 12.09.30: Trade Balance –7.5B from –7.4B. 12.00: BoE Interest Rate expected unchanged at 0.5%. APF expected unchanged at £200bn.
Euro:
Despite a return of risk appetite in the markets, the single currency has been sold off against the majors. European peripheral debt is the key issue at the moment, with Irish spreads widening out again on Wednesday. Additional worries about Ireland have in part been sparked by the rising cost of bailing out Angle Irish Bank, with those fears pushing Irish government bond yields to record levels. French Finance Minister Christine Lagarde said in an interview published Wednesday that she is confident the Irish government can manage the problems of nationalized lender Anglo Irish Bank, even though the situation is fragile. This led to a sell off in the value of the single currency against the majors with the euro giving up over one and a half percent to the pound. EUR/ USD also took a hit despite the dollar being sold off, leading to the currency pair falling below the $1.27 level.
Data 09.00: ECB Monthly Bulletin.
General:
• The Aussie dollar is continuing to trade higher against its major counterparts as the Australian economy seems to be outperforming other major economies. Data out last night saw the jobless rate fall more than expedited in August as employers took on more staff, helping to power the economy's expansion and reviving expectations interest rates might increase before the year is out.
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| GBP/USD | 1.5417 |
| GBP/EUR | 1.2156 |
| EUR/USD | 1.2678 |
| GBP/JPY | 129.03 |
| GBP/AUD | 1.6717 |
| GBP/NZD | 2.1312 |
| GBP/ZAR | 11.1680 |
| GBP/CHF | 1.5631 |
| GBP/CAD | 1.5985 |
| GBP/SGD | 2.0703 |
| GBP/THB | 47.63 |
| GBP/HKD | 11.9820 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker