Currency Update

Currency Update

The Pound staged a strong rally yesterday as the retail sales figure, and the CBI Industrial trends survey, gave the currency a boost. It is a sign of the level of pessimism in the UK that even with the retail figures posting a 2nd consecutive monthly loss, the fact that the loss was less than expected still managed to send Sterling higher. The Pound's rise was helped further along by the CBI survey which was also less weak than expected, and also showed a confidence in the manufacturing industry that they will be able to pass on the high price of oil along to their customers, further fuelling fears over inflation. The Pound jumped over 1.98 against the US dollar, although it has fallen back, and up towards 1.26 against the Euro.

After the Dollar's fall due to the gloomy nature of Wednesday's FOMC minutes, it went through a limited recovery as oil prices receded (although only down to around $130), a fall in weekly jobless claims figures, and Treasury Secretary Hank Paulson talking up the currency, claiming that the fundamentals in the US economy were sound and that the USD should reflect this. This helped the US Dollar climb against a broad range of currencies, pushing the Euro down below 1.58, and also mitigating some of the Australian Dollars strength.

Once currency that didn't fall against the US Dollar was the NZ Dollar, with the Kiwi benefiting from the NZ government's decision to aggressively cut taxes. providing a fiscal stimulus to the economy. and lessening the need for rate cuts. Previous signs of weakness in the Kiwi economy had led to expectations of cuts, and with NZ rates currently at 8.25% drastic cuts were expected, weighing on the NZD, but the currency has staged a revival in spite of weak consumer confidence figures, climbing back to 0.7850 against the Dollar, and pushing the Pound down to 2.5150.

Currencies are likely to trade within a tight range today as traders square positions before the long weekend. Sterling does have the potential to move however with the release of the 2nd estimate of the first quarter GDP. The first estimate had a 0.4% growth and this is expected to remain unchanged however with industrial production down, the figure could be weaker which could cause the Pound to lose some of yesterday's gains.
Before this we have just had the Eurozone Purchase Managers Index, which have fallen sharply leaving both the services and the manufacturing figures just above the level showing expansion. The figures further confirm the fears that the rest of the Eurozone is not following Germany's strength, putting pressure on the Euro, and on the idea of the single market.

Michael Corcoran - Assistant Manager |Treasury Solutions | nabCapital™ | A division of National Australia Bank Limited

No Comments

Post a Comment