YB FX Daily Report – 20th April 2009
Sterling was one of the best performing currencies last week, as the general optimistic tone continued for at least another week. However the Pound did lose some of it’s gains against the Dollar, although it did briefly rise above 1.50 midweek, weak US housing starts data and the relatively weaker GDP growth out of China have sent some international investors to seek the safe haven of the Dollar, taking the GBP/USD rate, down to around 1.46. In spite of Friday’s movements, there has been a breakdown in the usual relationship between the equity markets and the Dollar. Previously when the equity markets rose, the Dollar fell, however the Dollar continued to push upwards, it has also pushed the Euro down to below 1.30, while the S&P continued it’s rally, rising for the sixth consecutive week. The stock markets rally is likely due to the better than expected, or not as bad as feared, corporate earnings as Citigroup and General Electric published their figures. If the corporate earnings keep on rolling in better with positive figures, while global indicators continue to be weak, then the trend of rising markets and the rising Dollar could continue.
The Pound was well supported against the Euro last week as comments from a couple of ECB members have made the expected rate cute at May’s meeting seem a certainty. What is less of a certainty is what, if any, QE measures will be announced, the comments from the Trichet and Weber were more coy on this, saying that the definition of ‘non-standard’ measures would be clearer after May’s meeting. The general consensus is that they are likely to announce a buying of corporate debt, rather than treasury debt, much like the US and the UK did before starting on a genuine QE program.
This morning Sterling has dropped back against the Euro, in spite of the Rightmove survey announcing a third straight month of house price rises, although these are only asking prices not completion prices, and the CBI announcing that they see the worst of the recession as being over. The Pound has dropped back to around 1.12 against the Euro, possibly due to the CBI also predicting the recovery out of the recession taking longer than expected, but the weight of the expectations from this week’s UK data may also be playing a part.
The markets are likely to keep this mornings trend throughout the rest of this morning as little economic data keeps the Pound a little weaker, but the upcoming weak is packed full of 1st tier data on the UK for the markets to get their teeth into. Tomorrow we have CPI figures, on Wednesday there is the BoE minutes, unemployment figures, as well as the small matter of the budget, and on Friday there is the first estimate of Q1 GDP as well as retail sales. Most of this data is likely to be Sterling negative and could knock Sterling back, although the longer term trend of recovery is still looking good.
Michael Corcoran | Treasury Solutions Partner |Wholesale Banking | National Australia Bank Limited