US Dollar:
The lack of activity from the dollar yesterday shouldn’t surprise anyone with US capital markets and banks closed for the Labor Day holiday, there was a natural dampener on trading activity. Doing the rounds this morning is the announcement of a new proposed $50 billion spending program to update the United States transportation infrastructure. If we recall, the first round of stimulus from the government bolstered investor con¬fidence by entertaining hopes of a quick economic recovery while offering savvy traders an opportunity to get in front of a government investment. At first blush, this would fulfill the same requirements; but there are a number of shortfalls this go around. Among the technical troubles, this policy will face an uphill battle to be passed in Congress and it is also much smaller than the first stimulus injection. More importantly, there is the sticky situa¬tion where the market recognizes that the first round effort has fallen short of sparking a lasting a recovery. At this point, a second effort further leverages the government’s liabilities and is an admission that conditions are still deteriorating. Whether the market as a whole recognizes this to be the case, however, will be determined as the day progress on the New York open. Data—USD ABC consumer confidence SEP
Pound:
The British Pound quickly gave back Fridays gains against the dollar yesterday morning despite a sig¬nificant improvement in the BRC’s retail figures. Traders are still preoccupied with the outlook for more stimulus and a cooling in broader economic activity and all eyes are on the BOE rate announcement scheduled for 12.00 on Thursday. As of late, traders are pricing in a four percent chance that the Bank of England will hike rates twenty five basis points at its meeting on September 9, 2010, according to the Credit Suisse Overnight index swaps. As policy makers are unlikely to begin raising borrowing costs until the recovery is secured, the meeting of the minutes on September 22nd will provide expectations for future growth. Meanwhile, board member An¬drew Sentance will likely continue to dissent against the majority, calling for a rate hike. With high uncertainty regarding economic prospects in the near term, the split amongst the committee may widen in the coming months. Data—NO Data
Euro:
The euro was coming under late-session pressure Monday evening as the market digested a WSJ arti-cle covering Europe's recent stress tests. Major banks are understood to have understated some lenders' hold-ings of potentially risky government debt, a Wall Street Journal analysis shows. As part of the tests, 91 of Europe's largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks' total holdings of that debt as of March 31. European banks have experienced significant trouble in raising funds from the market and have had to tap the ECB for assistance. The same can be said of the EU governments who have had to pay much higher yields on balance and are still struggling to spark the level of demand that would pressure yields lower. In the coming months, the euro may come back under pressure as governments implement tough austerity measures in order to battle their ballooning budget deficits, which will in turn weigh on growth.
Data—GER Factory orders MoM/YoY
General:
A report by the IAEA said Iranian nuclear scientists had made at least 22 kilograms of enriched ura-nium at least 20 per cent purity, a technical hurdle that is the hardest to overcome on the way to weapons-grade uranium. Experts estimate that 20 kgs of uranium is the minimum required to arm a warhead. The uranium would still need to have its purity raised to 90 per cent, but that is a relatively easy process.
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| GBP/USD | 1.5934 |
| GBP/EUR | 1.2030 |
| EUR/USD | 1.2905 |
| GBP/JPY | 129.08 |
| GBP/AUD | 1.6872 |
| GBP/NZD | 2.11361 |
| GBP/ZAR | 11.1936 |
| GBP/CHF | 1.5543 |
| GBP/CAD | 1.6017 |
| GBP/SGD | 2.0760 |
| GBP/THB | 47.88 |
| GBP/HKD | 11.962 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker
\n John.georgiou@voltrexfx.com