YB Currency Update – Thursday 25thJune

YB Currency Update – Thursday 25thJune

Maybe it was the lack of surprise, but as the Fed delivered the speech that everyone was expecting, keeping rates low and staying on course, the Dollar actually rose, reversing the move of the past couple of days. The Fed did indicate that rates would be low for some time, and noted that the pace of contraction was slowing, although the continuing job losses would put a brake on any recovery, which would likely be gradual, but they also reassured the markets that the risks of deflation were abating. Maybe it was the retreating risks of deflation that switched the markets; long term rates rose and the Dollar followed pushing the Euro down back below 1.40, and the Pound back down to near 1.63.

The Pound has also fallen back a little against the Euro after rising to above 1.18 (it now stand nearer 1.17), possibly on the back of Governor King's speech late yesterday in which he criticised the government's actions, as he believes the BoE weren't consulted enough during the crisis, and as he has already said previously, that they don't have enough powers to enforce the regulations. There was also some bad news from the Organisation for Economic Co-operation and Development (OECD) which at the same time as revising the expected decline in the global economy from 4.3% to 4.1%, they downgraded the UK to a decline of 4.3% from 3.7%. This has led the Pound lower, not just against the Euro, but also down against the Australian Dollar, to near 2.04, although it has stayed relatively stable against the Yen, near Y158.

In Europe a couple of central banks have taken central stage, the Swiss National bank (SNB) have intervened to try to weaken their currency, the Swiss franc has actually been weakening against the Pound, but Sterling has been one of the stand out currencies this year, against the Dollar the Swiss Franc has slipped from up above 1.22 in December last year, to near 1.06 at the start of this month. The SNB intervention did have some effect on the rate taking it up to near 1.10, and it also helped boost the Pound and the Euro. The ECB was intervening in the market in a different way, they loaned EUR442.2bn in 1 year loans, the first loans of that length, in an attempt to further free up interbank funding. The ECB's actions are an admission that the money markets are still not as liquid as they would like, but it seems they are committed, at least for now, to avoid any QE measures.                                                      

There is little data out today, so the attention will remain on the central banks actions yesterday and what that means for the markets going forward. The Pound has still stayed within it's recent range above 1.62 against the Dollar, and 1.16 against the Euro, and any further dips will do well to drag the rate near these levels, even if the rate does drop further it is likely to be a good time for exporters to put any hedging in place rather than the start of a move downwards.

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