Currency Update

Currency Update

Much like the weather in the UK, the Dollar has started the week brightly but cooled yesterday. The two days of strong Dollar growth was partially reversed as yet again a rise in the price of Oil (up $5 per barrel) was matched by a drop in the US Dollar. There was also a fall in US banking stocks, S&P500 was down 1.7% and the Dow Jones down 200 points, plus the Fed beige book showed weakness in the US economy with 7 out of 12 regions reporting soft economic activity. The drop in the Dollar was mitigated by yet more hawkish Fed comments as two separate members both talked up the fears of inflation, with one even mentioning that the Fed will move to tackle inflation later this year.

The Dollar dropped allowing the Euro to climb back above 1.550 against the USD, however overnight the Euro has slipped back as the effects of speeches from ECB members distancing themselves from Trichet's hawkish like on interest rates has weakened the single currency. ECB member Stark said that they are not planning a series of rate hikes, and that any move in July would be a one off. There were also hints that the ECB may change their stance on rates after this weekend G8 meeting, which is likely to discuss currencies. The Euro has weakened dropping below 1.5430 against the Dollar.

The Pound also climbed against the Dollar yesterday, pushing up above 1.96, and this is in spite of higher unemployment figures, plus a fall in housing and banking stocks. HBOS have recently announced a rights issue to their current stock holders, and the slip in the price of their shares has actually taken it below the discounted price of the share issue. However like the Euro the Pound has slipped back overnight, back to where it started yesterday, around 1.9530.  

It's a quiet day for the UK, with just the BoE quarterly inflation attitude report released. It's will be no surprise when the report announces a further rise in fears for inflation, which will prompt further fears of rate hikes, but even though the BoE are likely to talk tough on inflation, the softening economy may help mitigate the worst effects and negate the need for further rises.

We also have retail sales for the Us in the afternoon. Consumer confidence may be low, and spending on the high street may be down, but the higher price of gasoline (which is a price inelastic commodity in economic speak) is likely to give the numbers some support. As we head into the weekend, and the G8 meeting in which the weakness of the US Dollar is likely to be a topic, talk of government support for the USD is likely to support what is still the worlds leading currency.

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