YB FX Daily Report – 16th June 2009

YB FX Daily Report – 16th June 2009

Sterling managed to hold onto it's gains against the Euro keeping around 1.18 as Eurozone employment figures painted a worrying picture of any recovery across the channel, as the employment rate fell by 1.2%. There is more tension ahead for the Euro as the ECB spooked investors with it's estimates of bank writedowns related to toxic assets, which it said could be around $650 billion, as the European banks have only announced $366b of write offs so far, there could be a lot of bad news waiting to come out. There are talks about the ECB conducting stress tests on their banks as the US did on a while ago, however it is undecided whether this will be done on a state by state basis or Eurozone wide, and if done it could crystalise some of the fears over the strength of Eurozone banks, and could lead the Euro lower still.

Sterling kept relatively stable against the Dollar hovering under 1.64 as the fears over the Dollar's place in the currency reserves of most of the world's states retreated, with Japan joining Russia in reassuring everyone that there are no immediate plans to move away from the Dollar, and into IMF bonds. Stock markets were slightly lower as the Eurozone employment, a US home builder's survey, and the empire manufacturing survey, which covers new york, was way below expectations. The bad news and the set backs to optimistic views on global growth have given the Dollar some support, it even forced the Pound down to near 1.62 overnight before correcting, and with today's full data calendar further downside risks to the GBP/USD rate are likely.

The knock back in global recovery expectations has hurt some currencies worse than others, so while the Dollar, along with the Yen, has benefitted, the Australian Dollar has not done so well, falling below 0.8 against the USD. The drop in optimism, albeit likely temporary and short lived, has weighed on commodity prices, keeping Oil steady at $70/bbl in spite of the ongoing problems in Iran, and this has also weighed on the AUD, allowing the Pound to clamber further upwards, breaking above the level of 2.05.

We have a bumper data calendar today, starting with inflation figures in the UK and Eurozone, with CPI here likely to come back inside the 2% target, while the Eurozone figure is likely to moderate down to 0%, reflecting the central banks activities, although there are many that think that the ECB have driven inflation too low, while the BoE have dropped all pretence of fighting inflation, instead actually incorporating inflationary QE measures into their remit, in spite of inflation proving a little more stubborn in coming down than expected. There is also the German ZEW index, US industrial production, and US producer price index released later today, which will all test the pace of the global recovery.

Inflation has proven itself surprisingly resilient, or perhaps unsurprisingly given the MPC QE measures, so the Pound could end up on the offensive today if it fails to drop as much as expected.

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