National Australia Bank Daily Currency Update 24th July 2009

National Australia Bank Daily Currency Update 24th July 2009

Equity markets continued there upwards rise yesterday, particularly in the US, as some strong corporate earning reports gave equities a boost. This rise may not follow on to today's markets as Microsoft bucked the trend announcing after the close of US markets, a drop in profits. The rise in stocks had the effect of weakening the Dollar as risk appetite increased. There was other good news out of the US as new home sales increased by 3.6% in June, don't forget the collapse in US housing is what started the whole mess. Microsoft's announcement may have softened some of the optimism and brought the Dollar back towards 1.42 against the Euro, while the Pound is a little higher than yesterday sitting above 1.65 against the US currency.

Yesterday's strong retail sales in the UK, a rise of 2.9% on the previous year, have given the Pound a little boost, helped by US equities, the Pound has risen above 1.16 overnight against the Euro. The rise in retail sales may help today's GDP figures for the 2nd quarter to avoid some of the worse predictions, and there is even an outside chance that it may push it into positive territory, only on a quarter v quarter basis as the drop in GDP in Q1 was so pronounced. Whatever the figure is, it will still show a large drop from the same quarter last year, and there is always the chance that the things customers are buying are from imports rather than domestic production, although with the Pound so weak this may not be such a threat.

The Pound has also made some gains against the Yen, rising back above 1.56, as Japanese investors seek higher returns in foreign investments, a trade strategy which was heavily used before the credit crunch. With Japanese stocks being outperformed by markets elsewhere, and even in a globally depressed interest rate environment, Japanese investments are giving smaller returns. Most of this money is seeking higher returns in emerging markets, but the it still depresses the Yen against the other major currencies.                                                           

The big data release of today is of course the UK GDP figure, it's only the first estimate so even a strong showing shouldn't make the market too optimistic although it should give Sterling some support. This afternoon we have the Michigan consumer confidence survey, which should tick upwards with rising stock markets boosting optimism, which would be supportive of risk appetite and by extension the Great British Pound.

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