YB FX Daily Report – 6th August

YB FX Daily Report – 6th August

Sterling continued it's gains yesterday after the better than expected data out for the UK yesterday morning including an increase in manufacturing and an increase in service sector PMI. Optimism about the global economy seems to be the main driving force in the currency markets at the moment with GBP reaping much of the gains not just against the USD but also against the Euro sitting around the 1.70 and 1.18 respectively. Stock markets had a turbulent day yesterday with both the Dow Jones and the FTSE closing down after a day of cautious trading but USD remained under pressure as investors needs for a safe haven currency seems to be waning.

Overnight Australia announced the employment data and showed again they are coping very well in this global downturn with a creation of 32,200 more people in jobs, better than the expected 20,000 keeping the unemployment rate steady at 5.8%. This information coupled with the dollar weakness has taken AUD/USD back to levels not seen since the third quarter of 2008. The Aussie Dollar is well placed at the moment and should also gain from the current USD weakness and the risk appetite that is now returning.

Both the ECB and the Bank of England have their interest rate decisions this afternoon and although it is very unlikely that either of them changes interest rates, everyone will be waiting to hear is the central banks view on the current quantitative easing strategy that they are both using. Market sentiment is split over weather the Bank of England will increase the QE measures, using the remaining £25bn allocated or leave them on hold for the time being. This decision could have big implications for both Sterling and the Euro. As printing money will mean that there is more money around, this could reduce the value of the money in the market due to supply and demand. On the flip side, if the central banks stop the QE measures but the market thinks they are still required this could hurt the recent optimism about the economy which has been the main reason behind the recent gains. Whatever happens, this afternoon should be an interesting time for currencies.

Looking at the rest of the day we have the German factory orders data coming out late morning which is expected to show a marginal increase month on month after last months surprise 4.4% jump which should show a little about the German economy ahead of the ECB announcement. We also have US Initial Jobless Claims this afternoon which is expected to show an increase of 11k. Tomorrow we have UK Producer Price Index but the main news tomorrow will be the US Non Farm Payrolls expected to show a loss of 345k, better than last months loss of 467k.

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