YB FX Daily Report – 5th August 2008
The markets took a pause for breath yesterday as investors used the highs of the markets to close some of their positions and take profit. The Pound slipped against the Dollar by almost a cent, although that is almost a cent of it’s high at 1.70. The slip backwards was in spite of some better than expected construction data, which didn’t follow manufacturing back into expansion, but is at least contracting more slowly. Later on in us trading equities started to rally again and this is likely to give support to the Pound, which has remained strong against the Dollar even with Lloyds announcing a massive loss of around 4bn (4,000,000,000), which was actually better than expected. Most of the losses are down to Lloyds’ takeover of HBOS, and are once again linked to bad loan provisions and not losses on the investment markets.
The Pound has stayed remarkable steady against the Euro, holding around 1.1750. Part of Sterling’s resilience comes from the Halifax house price measure which reported overnight that prices have risen 1.1% in July, almost double the expectations of a 0.6% release. The actual turnover of house sales is still extremely low, but the figures do give support to those who predict that the UK economy could return to expansion as soon as this year’s third quarter. The Euro has stayed steady against the Dollar holding onto it’s gains to keep around 1.44.
One currency that managed to dodge the profit taking falls was the Australian Dollar, supported by an overall rise in retail sales for the last quarter, as well as the RBA providing an up-beat assessment of China’s growth opportunities, keeping Australia’s interest rates at 3%, while also removing some of the more dovish sentences from their statement, indicating a return to a neutral stance on interest rates with further rate cuts now seemingly unlikely. The statement has kept the AUD up towards 2.0160 against the Pound, and 0.84 against the Dollar.
Sterling has already been given a boost this morning, with service sector PMIs showing the fastest growth for 17months, and industrial production figures rising month on month, although they are still down over the last quarter. The figures have sent the Pound up towards 1.18 against the Euro, and 1.70 against the Dollar. As the MPC meet today the good figures from the construction, service, and manufacturing sectors are unlikely to spur them to announce anything new on the QE front.
Later today we get the ADP employment report in the US, often used as an indicator for this Friday’s non-farm payrolls, in spite of it’s unreliability. A further strong figure, which in this case would be fewer job losses, could help push Sterling over it’s resistance levels against the Euro and the Dollar.