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Good afternoon, I spoke yesterday about positive indicators for the UK and the Euro; they have kept on coming. As well as the stress tests and GDP, the Confederation of British Industries (CBI) has produced results stating that retail sales are at a 3 year high this month further boosting confidence. Within Europe there were significant bond sales for Hungary and Spain with lower yields than analysts were expecting, another positive sign for the Euro zone. Voltrex, Moneycorp, Currencies Direct and TorFX provide the market highlights today.
As I continue to circulate my daily currency market reports, I have realised that there is a lot of technical jargon being included in our market reports by our specialists and myself. I have therefore written a short passage entitled ‘Understanding the Currency Markets’ to explain some of the more technical areas that are discussed in the market. It is available on the SendMoneyHome website below the currency rates themselves (click on the titled link above to go to the page)
Market introduction by Stuart May
Voltrex
US Dollar: The Dollar continues to remain generally offered on the FX market this week with EURUSD hovering around 1.30 and cable testing 1.56. Global risk appetite appears to holding strong as U.S. stock futures are little changed this morning following The Dow Jones Industrial Average rally on Monday which closed up 101 point lifting the U.S. stock index into positive territory for 2010 for the first time in five weeks.
Pound: The Pound posted strong gains against the Dollar yesterday breaking 1.56 to trade at its highest point since mid Feb as it maintains the upward trending channel from the June low (1.4346). A report by the Confederation of British Industries showed retail sales in the U.K. grew at the fastest pace in more than three-years, with the gauge for household spending increasing to 33 in July from -5 in the previous month, and conditions may continue to improve going forward as the economic recovery gathers pace.
Euro: The euro has shown a strong run of it recently but traders are starting to question the sustainability of the move. Overall, the euro was actually little moved yesterday, though a few fundamental developments could have been tapped by those with a bullish bias. Of particular interest were the ‘successful’
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Moneycorp
Sterling higher, helped by retail sales
The economic think tank assesses the risk of Britain's economy falling back into recession next year at one in five. Prior to last month's emergency budget that risk was one in seven. NIESR thinks living standards will not return to pre-crisis levels until 2015, roughly the same time horizon recently mentioned by the Federal Reserve in the States.
That unease is shared by investors but they are not acting on it at the moment because the solid economic evidence is telling a different story. Last Friday's strong figures for gross domestic product (GDP) were anything but recessionary. The only figure since then, yesterday's retail sales figure from the CBI, was also surprisingly strong with a net 33% of shopkeepers reporting higher sales in July. It was the strongest reading for three years and gave the pound a sense of purpose which it used to good effect during the rest of the day. Compared with yesterday morning's opening levels the pound starts today stronger against everything.
The only data that made any difference to exchange rates came from the antipodes. New Zealand business confidence unexpectedly fell from 40.2 to 27.9, temporarily sending the NZ dollar half a cent lower. The other surprise was Australian inflation. Investors had been looking for consumer prices to have risen by something like 1% in the second quarter of the year. A figure around that level, they thought, would be enough to persuade the Reserve Bank of Australia to take interest rates another notch higher at next week's policy meeting. There was therefore grave disappointment when the figure came in at 0.6%.
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Currencies Direct
Sterling received another boast this morning after a leading think-tank announced that Britain will avoid a double-dip recession and its economy will expand at trend growth rates as early as 2012. In the latest forecast from the National Institute for Economic and Social Research (Niesr), it predicts GDP growth of 1.3% this year, 1.7% next year and 2.2% in 2012. The news follows recent strong economic data over the past week where GDP and retail sales figures shocked the market on the upside.
The euro has risen against both the dollar and the yen once more this morning as improving demand for riskier assets continues to push European equities higher. The single currency remains near its strongest level against the dollar in more than two months after European stocks climbed. Eurozone M3 money supply rose by 0.2% Y/Y versus expectations for a 0.1% decline.
The Australian dollar dropped by the most in more than a week overnight as a government report showed consumer prices increased at a slower pace than economists had forecast, giving the central bank scope to keep rates unchanged in August. The Aussie slid against all 16 of its most- traded counterparts as traders cut to zero the likelihood that Australia's central bank will increase its key rate when policy makers meet on August 3rd.
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TorFX
The Pound rallied to a fresh five-month high against the U.S Dollar this morning, while the UK currency also made strong gains versus the majority of the 16 most actively traded currencies. Sterling hit a high of 1.5575 in London, as global risk appetite continues to improve, diminishing the allure of the U.S Dollar as a safe haven asset.
Concerns over the U.S economic outlook also dominates, amid fears of a double-dip recession, as the economic data points to a slowing housing market and rising unemployment. UK stocks have risen for a second successive day, buoyed by a rally in banking shares, as Barclays Plc rose 5%. The benchmark FTSE 100 Index was up 0.8% by midday, while crude oil prices also hit an 11-week high, after analysts at Goldman Sachs said that the price was too cheap.
The Pound also recovered earlier losses against the resurgent Euro, rising towards 1.1960 in London, despite a lack of any key economic data released in the UK or the Euro-zone. The corrective recovery appears more technical than fundamental, but Euro buyers are advised to be cautious, as the single currency broke through $1.30 against the U.S Dollar this morning. The performance of the single currency versus the greenback seems to be dictating GBP/EUR in recent days and buyers would be well placed to utilise a stop order to protect against a further downward move.
The Euro maintained a strong tone against the Dollar in early European trading yesterday, rising above the coveted $1.30 level against the U.S Dollar. European economic data again provided support, with German consumer confidence rising to 3.9 in July, from a revised 3.6 in June. There was also an annual increase in Euro-zone money supply for the first time since January.
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