YB FX Daily Report – 4th of June
As Gordon Browns run seems to be coming to an end sterling’s month long run finally came to an end yesterday as concerns about the USD concerns eased and stock markets were hit with the FTSE down 0.78% and the S&P down 1.37%, the first drop in five days. Although stockmarkets were down, mainly from profit taking, talks of a swift return to growth were once again ignited with the PMI for the service sector not only being better than the previous month but actually showing growth rather than the not as bad as last time result which is the most positive news we have had recently.
The Aussie Dollar managed to make some good gains yesterday rising to it’s highest level against the dollar for 8 months before coming off in the afternoon due to the USD strength. The country managed to avoid a technical recession posting a 0.4% year on year rise in GDP in the first quarter. Despite the positive GDP figures, both the government and the central bank believe the country with fall into recession later in the year albeit not as severely as other developed countries.
The USD got some support yesterday from monetary sources in Asia (China, Japan, India & South Korea) saying that they would keep buying US treasuries even if they were downgraded. In addition to this, Fed Chairman Bernanke told US Congress that the Fed would not accommodate wider budget deficit by simply printing money in an attempt to re-assure foreign investors concerned with the safe haven status to the Dollar and a mass exodus away from the USD is looking less likely. Concerns about the US Dollar’s reserve status recently have kept pressure on the greenback being one of the reasons that the USD has had quite a poor run of late.
Firmly taking the limelight today will be the monetary policy decisions of both the UK and the Eurozone this afternoon. We are not expecting a change in base rate from either of the central banks but analysts will be paying close attention to any mention of that phrase everyone is now aware of, Quantitative Easing. As the ECB have been much slower to cut rates and adopt a policy of QE they have more room for maneuver but have not been as keen to print money as the UK and our friends over the pond have meaning any mention of this could have large implications for the Euro. Other than the central banks decision today there is the non-farm productivity in the US expected to show a small increase and could give more support for the USD.
Jonathan Greensit | Assistant Manager, Treasury Solutions | Wholesale Banking | NAB Ltd