YB FX Daily Report – 10th June 2009

YB FX Daily Report – 10th June 2009

The strong rise in US bond yields had pointed to expectations of US interest rate rises later this year, which had seem to be supported by comments from a Fed chairman, however the markets seem to have over egged the chances and yesterday comments from another Fed Chairman that while the US is close to resuming economic growth the labour market will lag any recovery, something that is also true for the UK, and therefore any rises should come only after signs of recovery in the jobs market. Lloyd's have started to pay back some of the massive government investment, and the same is happening in the US with 10 banks buying back $68bn of shares, any rate hikes could endanger this banking recovery, as let's not forget the rate cuts were not just to help stimulate the economy, but also to help ease the funding crisis for banks who relied on the wholesale money markets.

The decline in the expectations of a rate rise this year in the US has halted the Dollars rally, allowing the Euro to climb back above 1.40 against the US currency. The Pound has posted even bigger gains against the Dollar, rising back above 1.64 as the yesterday's house prices surveys point to some stabilisation of the housing market, although not yet recovery, and the recent political crisis seems to have abated, at least until the autumn or the new year when MP's have less to lose, although whether any Labour candidate for leadership would fancy taking over the party to lead it into a hiding in the elections is doubtful. Changes in leadership, especially unscheduled ones, are harmful to the currency so Sterling's recovery isn't that much of a suprise, although perhaps the scale of it is.

The Pound has also risen against the Euro although not to the same extent as against the Dollar. The GBP/EUR rate has climbed back above 1.16, with the lack of any positive directional data weighing on the Euro. The Pound has also recommenced it's upward trajectory against the Yen, breaking through Y160 in this morning's trading as the Yen is hit once again with some weak data on machine orders adding extra impetus to the Yen's misfortunes. Another currency that has benefitted from the upturn in global sentiment has been the AUD which has managed to climb above 0.81 against the USD and kept to around 2.02 against the Pound, partly buoyed by rises in the commodity markets with oil once again rising above $70/bbl, and the usual scare stories about fuel prices rearing their heads.

The data releases data focus on UK manufacturing and trade, the manufacturing figures are expected to be in line with previous months, and with the general tone of almost all data releases, showing a slowdown in the pace of decline. The Trade deficit is expected to continue to shrink as the weak Pound, and even with the recent sharp rises the Pound is still weak, make imports more expensive while at the same time increase our exporters competitiveness, all of which should support the Pound today if not send it shooting up as fast as the past few days.

No Comments

Post a Comment