US Dollar:
The strong global equity rally has provided the main lift in commodities and higher yielding curren-cies of late, however, there are signs that the current rally is running out of steam. The greenback had seen a large sell off against the majors, with losses posted against the pound and euro. This had also been helped by growing chatter that the Fed will go for another bout of QE, which in turn is dollar negative. On the other hand, the less likely they are to do that, the less negative it is for the dollar. More QE is very far from a done deal, as it is one of the last bullets in their ammo belt, and they’re going to be very reluctant to use it. But as we have seen over the last week or so, even speculation that QE is on the way has had a very big effect on the value of the buck. Last night we heard more stories of the ’QE’ factor, with Fed official considering new tactics. Rather than announcing massive bond purchases with a finite end, they are looking at a more open ended, smaller scale program that they could adjust as the recovery unfolds. This story has much further to run to give us a much clearer picture of where the dollar will go next. Data 15.00: CB Consumer Confidence 52.5 from 53.5.
Pound:
Sterling’s recent rally against the dollar has seen an impressive three cents gained in the pound’s fa-vour over the last 7 days, but a small reversal in the bucks favour has been posted in early morning trade. Cable had been as low as $1.55 this time last week, but a global rally in equities, and talk of the Fed engaging in an¬other round of QE all led to the dollar’s sell off yesterday saw cable trade over the $1.5850 mark, but some profit taking and consideration of whether the recent stock market rally had gone to far saw some risk taken out of the market. The pound’s highs of yesterday against the dollar were also helped by a welcome comment by the IMF which seemed to back the UK’s austerity moves. The International Monetary Fund has thrown its weight behind the Governments austerity drive, describing the “strong and credible plan…essential to ensure debt stability”. The pound’s position against the euro had seen range trading, but the IMF endorsement for the UK, combined with rumours that Ireland is yet again causing concerns for the euro led to a small move in the pounds favour. This morning this has continued as GBP/EUR again traded higher hitting 1.1780. Data today brings the final release of UK second quarter GDP data and CBI distributive trades survey. Data 09.30: Current Account –9.6B unchanged, Final GDP q/q 1.2% unchanged & Revised Business Investment –1.6% from
Euro:
The euro was little changed against sterling over the last few days, with range trading continuing for the currency pair, but this has now taken a small move against the single currency. The European Central Bank considered activating the eurozone’s emergency rescue mechanism to provide Ireland with funds, according the a report in the German Handelsblatt newspaper. This story combined with the IMF’s comments on the UK’s austerity plan saw the euro fall against its UK counterpart, with EUR/GBP now under the 0.85 level. The single currency has had better luck against the dollar with EUR/USD hitting a five month high in the euro’s favour of $1.35. This has come on the back of the big sell off for the greenback, with rumours the Fed were to turn the printing presses on for a second time with another bout of QE. This morning though we have seen the euro give up some of those gains, with a cent drop down to $1.34. No major data.
General:
• The Bank of Japan will discuss taking further steps to ease monetary policy at its Oct 4-5 policy board meeting, according to the Nikkei.
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| GBP/USD | 1.5708 |
| GBP/EUR | 1.1786 |
| EUR/USD | 1.33283 |
| GBP/JPY | 132.85 |
| GBP/AUD | 1.6490 |
| GBP/NZD | 2.1571 |
| GBP/ZAR | 11.1182 |
| GBP/CHF | 1.557 |
| GBP/CAD | 1.6345 |
| GBP/SGD | 2.0878 |
| GBP/THB | 48.31 |
| GBP/HKD | 12.2473 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker