YB Currency Update – Tuesday 4th August

YB Currency Update – Tuesday 4th August

Northern Rock announced their profits this morning, or I should say their losses, as, un-surprisingly, unlike Barclays and HSBC, Northern Rock have lost 724 million pounds. Unlike the other two banks, Northern Rock don't have an investment franchise, and although 'casino banking' has come under a lot of criticism, but the revenue from this type of banking is what has kept their profits up, and it was in fact not gambling on the markets which brought banks to their knees, but lending money which was never going to be paid back, and which was secured by unstable assets, something Northern Rock excelled in. Their figures have failed to dent the markets optimism, as yesterday's banking news, plus the PMI for manufacturing indicating that the UK is the first G7 nation that has a manufacturing sector back into expansionary territory.

The good PMI data from the UK, coupled with less good but now bad manufacturing data from the Eurozone, and the banking news, sent equity markets higher again, with the DAX, S&P500, and the FTSE all rising more than 1.5%. The optimistic mood caused some movement in the currency markets also, and as some of the good news was out of the UK, it is no surprise that the Pound was a strong beneficiary jumping up above 1.70 against the Dollar this morning, a level not seen since October 2008, although it has dropped back. The Pound has found it harder to make headway against the Euro sticking around 1.1750, as the Euro itself has climbed against the Dollar, climbing up towards 1.44.

The rise in the markets has depressed the Dollar further as investors remove their funds from the safe haven currencies, something that has also depressed the Yen, which has slipped against the Pound as the rate climbs back above Y160. The markets rise had the opposite effect on the higher yielding currencies and the AUD has risen against the Dollar again, this time above 0.84, although the Pound has still managed to claw back some strength against the antipodean currency rising to around 2.0150.

Today the focus will be more on the US releases with just PMI for construction released in the UK. This afternoon we have a measure of inflation as  well as pending home sales and consumer confidence figures from the US. If the releases continue the recent improving trend then we could see a further, although likely limited climb higher for the Pound against the Dollar, if the data disappoints it seem the market mood may be able to resist a little bad news, and it could take something genuinely surprising to reverse the recent trend.

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