YB Currency Update – Wednesday 3rd June

YB Currency Update – Wednesday 3rd June

The Dollar's woes continued over yesterday and early today. Whilst US Treasury Secretary Geithner continued his Chinese charm offensive, professing that the huge US budget deficit was temporary and wouldn’t undermine foreign demand for US bonds, his hard work was undone by Russian President Medvedev confirming that a proposed supranational reserve currency as an alternative to the greenback will be discussed at an upcoming meeting involving Brazil, Russia, India and China:

“We need some kind of universal means of payment, which could create the basis of a future international financial system. Naturally, because of the crisis in the American economy, attitude to the dollar has also changed.”

Though unlikely that the greenback will lose its status as the world’s reserve currency in the near-term, there’s little doubt that China and a number of other large emerging economies are strongly committed to a much reduced role for the USD as a reserve currency in coming years. With the Dow Jones finishing slightly higher, and stronger than expected US home and vehicle sales data, investor risk appetite has been further boosted. This morning's UK Nationwide Consumer Confidence survey also showed an improvement in sentiment. All of this combined helped push GBP/USD up to a peak of 1.6650 this morning, a gain of nearly 3 cents over 24 hours, though this has since pulled back to below 1.6550.

Elsewhere, investor confidence will have been further boosted by GDP figures released in Australia showing unexpected YoY and QoQ gains of 0.4%, meaning they avoided a technical recession (2 successive quarters of negative growth), though the impact of this on GBP/AUD was tempered by the fact that domestic final demand remains weak, and a sharp fall in imports was a major contributor to this figure.

This morning we have seen positive PMI Services data for the UK and a raft of slightly worse than consensus data for the Eurozone that has pushed GBP/EUR back above 1.16. In the US we will see employment data that may give an insight into friday's all-important non-farm payroll release, as well as data on factory orders and mortgage applications. The Fed governor Ben Bernanke also speaks before the House Budget Committee, providing the Fed's insight on the US economy and prospects for the Dollar.

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