US Dollar:
The dollar initially lost ground against the pound and euro yesterday, but cable soon plummeted after UK CPI data came in lower than expected. This was despite a rally in US and European equities which normally see’s the dollar decline against its UK counterpart. The dollar held firm after the release of UK eco-nomic data and traded higher. The greenback did struggle against the euro however, as a successful bond auc¬tion in Ireland and Spain saw the single unit take nearly a cent off the greenback. The Dow Jones snapped a five day losing streak on Tuesday, powered in part by better than expected earnings from retail giant Home De¬pot and Wal-Mart. But investors seemed to focus on the glass half-full aspect of the economic landscape and the markets. Risk aversion gained strength and the risk trade moved towards centre stage as investors sought to regain lost ground. Data 15.30: Crude Oil Inventories expected –1.1M from –3.0M
Pound:
Despite a gain in risk appetite and a move back into higher yielding currencies after strong equity per-formances, the pound missed the show boat and instead focused on economic UK data. Sterling had initially started Tuesday morning looking like a push higher against the majors was on the cards, then came the 09.30 UK CPI numbers which came in slightly lower than the previous month, pushing the pound lower. UK inflation eased to 3.1% in July from 3.2% in June, the third month in a row that prices have risen more slowly, however, the CPI is still well above the Bank of England 2% target rate. This may well have taken the pressure off the BoE for a possible interest rate increase further down the line, a perceived negative move for that countries cur¬rency. What hurt the value of sterling against the euro even more, was a strong performance in government bond sales in Ireland and Spain. This saw the pound give up the ghost and dropped from 1.2220 down to 1.2072. Cable also kept falling as we fell below the $1.55 level as a sell off in sterling gathered momentum. Looking ahead, the pound still may recover on the back of the eurozone’s fragile outlook. Looking to today’s economic data, the Bank of England will release the minutes of its Monetary Policy Committee meeting, which are expected to show the decision to leave rates unchanged was supported by eight votes, with Andrew Sen¬tence the sole dissenter, voting for a 25 basis point hike.
Data 09.30: MPC Meeting Minutes expected 1-0-8
Euro:
The equity rally seen yesterday in the eurozone and US gave a lift to some higher yielding currencies, including the euro, to gain against the dollar. This saw a cent gained in the single currencies favour to push EUR/USD up above the $1.29 level. Against sterling, the euro also performed well as weaker than expected UK CPI data hurt the value of the pound, pushing EUR/GBP one percent in the euro's favour to 0.8273. We also saw support for the single currency in the form of strong demand at Irish and Spanish government bond auc¬tions, as they soothed concerns about the ability of countries at the periphery of the eurozone to recapitalize. The heightened demand for riskier assets helped the euro gain on the dollar to bounce back from a seven-week low hit against the yen on Monday. This also helped the euro trade higher against an under fire pound.
Data: Nada
General:
• Investors are closely watching the yen’s movements against the dollar amid speculation that Japanese official may intervene in currency markets to combat recent yen strength. This caution effectively pinned the two currencies into a narrow range.
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| GBP/USD | 1.5514 |
| GBP/EUR | 1.2087 |
| EUR/USD | 1.2831 |
| GBP/JPY | 132.61 |
| GBP/AUD | 1.7244 |
| GBP/NZD | 2.1822 |
| GBP/ZAR | 11.3066 |
| GBP/CHF | 1.6155 |
| GBP/CAD | 1.6021 |
| GBP/SGD | 2.0136 |
| GBP/THB | 49.11 |
| GBP/HKD | 12.0556 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker
j \j \n ohn.georgiou@voltrexfx.com