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US Dollar:
A triple whammy of the largest US trade deficit in 21 months, disappointing import figures from China and the fallout from the Federal Reserve’s downgrade of its economic outlook sent traders running for safety in gilts and long dated bonds, as a major sell-off in equities and certain currencies began. The Dow closed down 2.49%, the S + P down 2.82% and the Nasdaq off 3.01%. The worst day of trading on major US markets for more than a month. This led to a scramble for cover in the usual safe haven currencies and a run from the euro and pound. On a bad note for the dollar, we saw USD/JPY hit a 15 year low, falling to Y84.72, but the dollar index—which measures the greenback against a basket of currencies—had its best one day performance rise since October 2008. Against the euro we saw dollar strength, with 2.1% gained in favour of the greenback, its best one day performance since January. Against sterling we saw the buck continue its move higher, with nearly 3 cents gained this week to push GBP/USD from the 1.60 levels to below the 1.57 mark.
Data 13.30: unemployment Claims 465k from 479k & Import Prices 0.4% from –1.3%.
Pound:
A combination of a gloomy forecast on UK economic growth by Bank of England Governor Mervyn King and cautious comments by the Fed saw the pound drop against the dollar. The BoE Governor downgraded his ex-pectations for GDP growth to 3% over the next two years and said inflation will remain above the banks 2% tar¬get throughout 2011. Without any UK data of note Thursday, investors will look to US initial jobless claims and import price index at 13.30. Markets are now concerned about world growth, not just about the US. Soft data out
of France, Japan and China has sparked a move back into the dollar, at the pounds expense. A further decline in equities is likely to be associated with US dollar strengthening as investors cut risk positions, which would further hurt cable. Sterling has recovered slightly this morning, but yesterdays fall against the dollar after the BoE forecast, pushed cable below the $1.57 mark for the first time since August.
No major data.
Euro:
The euro dropped against the majors yesterday as the single currency had the wind taken from its sails. Against the pound we saw the single currency give up over 1.5% to push EUR/GBP down to 0.8210 as a run to safe haven currencies hurt the euro. The single unit fell to a two week low below $1.29 and lost nearly 2.3% Wednesday, its biggest single day fall against the dollar since December 2008. The euro was also down 2.3% against the yen on the move away from risk.
Data 10.00: Industrial Production m/m 0.7% from 1.0% & Italian Trade Balance –1.41B from –1.96B.
General:
• Oil prices are falling Thursday, as a slew of negative economic data worldwide ignited concerns over the fragile state of the global economic recover, pushing the black gold down to $77.21 per barrel.
• Currencies tied to global growth, such as the Australian, Canadian and New Zealand dollars, tumbled at least 1.0% against the greenback.
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| GBP/USD | 1.5715 |
| GBP/EUR | 1.2157 |
| EUR/USD | 1.2932 |
| GBP/JPY | 134.63 |
| GBP/AUD | 1.7470 |
| GBP/NZD | 2.1986 |
| GBP/ZAR | 11.4402 |
| GBP/CHF | 1.6595 |
| GBP/CAD | 1.6433 |
| GBP/SGD | 2.1379 |
| GBP/THB | 50.13 |
| GBP/HKD | 12.2054 red-down; blue-up (snap shot) |
For more information or to get the latest spot rates contact:
John Paul Georgiou
Senior Foreign Exchange Broker
\n john.georgiou@voltrexfx.com