Currency Market update 26/07/2010 by SendMoneyHome

July 26, 2010 - PRLog -- Good afternoon, the eagerly awaited European Central Bank stress test results came out on Friday and the main word being bounced around over the weekend and today is Inconclusive. In other words investors and market analysts have scrutinised the stress test criteria vigorously and have deemed that the tests were too easy and some important criteria such as sovereign default issues were not addressed. In other news the UK performed a lot better than expected for economic growth and was reflected in the currency markets. Moneycorp, TorFX, and Currencies Direct 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

Moneycorp

UK economy speeds up in Q2

Cable had a good day on Friday though. It went up by a cent and a half after the figures for UK economic growth in the second quarter of the year. According to the initial estimate, gross domestic product (GDP) went up by 1.1% between the end of March and the end of June. There will be two revisions to the figure before it is finalised but, assuming it was not just an egregious typo by the Office for National Statistics, provisional GDP growth was way ahead of the 0.6% that analysts had been looking for and nearly four times as strong as the previous quarter. Sterling reacted positively (it could hardly have done otherwise) adding two yen, one euro cent and nearly three cents against the Swiss franc.

There will inevitably be suspicion about the figure; accusations that it was too good to be true. That was certainly the case after the EU published the results of its long-awaited stress tests on 91 European banks. One German, one Greek and five Spanish banks will have to raise €3.5 billion between them in order to bring their capital ratios up to a satisfactory level. The other 86 banks are bomb-proof. At least, they would be bomb-proof in the gentle scenarios postulated by the tests, such as if a small piece of dirt were to hit the fan.

The market's initial reaction to the tests was one of confusion. Yes, almost everyone passed; no, the stresses were not testing enough, yes, the only grade Ds were among the small fry that play no part in the wholesale market, no, the EU was doing a whitewash job. Euro/dollar thrashed about across a cent-and-a-half range before coming to no conclusion whatsoever. By the end of the New York session the euro was slightly higher against the US dollar and half a cent better against the franc. It has not lost any ground in the Far East this morning so it looks as though investors are satisfied with the outcome. Not delighted but satisfied.

http://www.sendmoneyhome.org/moneycorp

TorFX

Following on from last week, the Pound rallied by the most in a week against the U.S Dollar, approaching $1.55 by the close of trading on Friday, while the UK currency also traded back towards 1.20 versus the Euro, amid reports from the Office of National Statistics, which showed that UK retail sales rose more than expected in June. Sales rose 0.7% on the month, reducing concern that the economy might suffer a "double-dip" recession, after the biggest public spending cuts in a generation.

Paul Mackel, a director of currency strategy at HSBC Holdings Plc, said that "the retail numbers were very punchy. The European data set has been surprisingly strong and the Pound is riding the coattails." The UK currency maintained gains against the weak Dollar, after reports showed initial jobless claims rose and existing home sales fell for a second month.

The Pound continued to gain versus the U.S Dollar, as UK stocks continued to advance following reports in Europe that services and manufacturing growth unexpectedly accelerated in July. The Euro has rallied 8% against the Dollar from the lowest level in four years last month, as investors became more optimistic that the struggling peripheral nations in the Euro-zone will be in a position to finance their own debt, after the ECB embarked on a policy to buy bonds.

The Euro weakened against 12 out of the 16 most actively traded currencies following the results of the European bank stress test on Friday, amid speculation that the standards of the test were too low to ease concerns that the region's debt crisis will spread. The single currency declined for the first time in two-days against the Dollar, after regulators found seven banks need to raise a combined €3.5 billion of capital.

http://www.sendmoneyhome.org/torfx

Currencies Direct

Stress Tests Inconclusive

The results of the Eurozone bank stress tests were eventually released on Friday evening showing only 7 of the 91 banks tested were deemed to have failed, and the capital shortfall was estimated at €3.5 bn. Both are very much at the lower end of consensus forecasts, raising questions over the credibility of the tests. Interestingly, a sovereign default or restructuring scenario was not included, as media leaks earlier in the week had suggested. At the press conference, ECB Governing Council Member Constancio justified this decision by noting that “instruments have been put in place precisely to avoid that scenario".
The British pound managed to stage a rally on Friday, gaining over 1% versus both the US dollar and euro after the release of very positive Q2 GDP figures. The Office for National Statistics showed gross domestic product jumped 1.1% q/q, its fastest rise in four years. On the year the level was 1.6%, beating the projected 1.1% and the first positive reading in two years. The release, which showed Britain's economy grew almost twice as fast as expected in the second quarter of this year was propelled by a sharp rise in the services sector (expanding 0.9% q/q) and the largest contributor to the increase, construction, which leapt 6.6% on the quarter, its fastest rate since 1963.

http://www.sendmoneyhome.org/currencies-direct

# # #

SendMoneyHome is the most comprehensive and global money transfer comparison portal. What every your reason for sending money overseas, you will find a quick and easy comparison at sendmoneyhome.org.