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Corporate foreign exchange news

Thursday, September 02, 2010

Source: Catherine Deshayes

The pound spent most of last week trading on the crosses as EUR/USD movements dominated the markets. Initial weakness for sterling came from a credit warning by rating agency Standard & Poor's and comments made by Bank of England MPC member Martin Weale...

Standard & Poor's warned that the U.K. was at risk of losing its AAA crediting rating due to the impact that government spending cuts would have of future economic growth.

Additional pressure on Sterling came after MPC member Weale was quoted as saying that Britain faced the risk of sliding back into recession and that the central bank's growth forecasts for this year and next may be too optimistic.

The events prompted a slide in European stock markets that suggested investors were scaling back riskier positions which added to selling  pressure on sterling as it is considered by many to be a higher risk currency. U.K. retail data gave the pound some support mid week coming out higher than expected.

CBI distributive trade figures came out at 35 versus 33 in July, the data showed sales volumes had risen on a year on year basis.

The remainder of the week saw the pound range trading versus the dollar and the euro as markets awaited the release of U.K. GDP data and events from the United States on Friday. 

Growth in the U.K. was revised up to 1.2% from the previous 1.1% due to an increase in construction spending, the pound briefly gained on the back of the robust release although markets seemed sceptical about the stability and sustainability of economic recovery suggested by the figures, the pound closed the week having given up most of the earlier gains it had made versus the dollar and the euro.

The Euro saw a mixed trading performance; range trading against the pound while making consistent gains versus the dollar. The single currency started the week on the back foot after German PMI manufacturing figures dropped to 58.2 in August. Standard & Poor's added to the Euro's woes as well this week downgrading Ireland's crediting from AA- from AA, citing concerns over the government's ability to continue supporting its financial sector with liquidity bailouts. The events did not have a lasting impact on the euro and any weakness in the currency was limited. Uncertainty over the recovery and a slowdown in the U.S. economy  better than expected confidence figures gave the single currency the support it needed to push higher across the board. German business confidence rose to 106.7 in August, up from 106.2 in July. German GfK consumer confidence showed a similar trend beating economists' forecasts on 4 to come out at 4.1 m/m.

Further support for the Euro came from activities in the United States which continue to show signs of the economy slowing.

The focus for dollar traders this week was the Federal Reserve Bank retreat in Jackson Hole and the statement from the Feb Chairman, as well as U.S. GDP revisions. Prior to these events the greenback saw a great deal of volatility due to significant movements in commodity prices and weaker economic data releases that kept investor concerned that the U.S. economy was continuing to slow. Existing home sales fell to 3.83mln in July, down from the 5.26mln units sold the previous month, while new home sales fell to 276K for the same period. Weekly jobless figures did give the dollar some support beating forecasts, claims fell to 473K from 500K when compared to the week before.

Gold prices saw significant fluctuations as technical and physical demand for the commodity pushed prices higher, profit-taking on technical levels  saw prices fluctuate sharply dragging the dollar along with it.

U.S. GDP Q2 showed a downward revision to 1.6% from the initial 2.4% figure released, economists had expected growth figures to be revised to 1.4% for the second quarter. The data gave the greenback some support but markets remained cautious as they awaited comments from Fed chairman Bernanke.

U.S. Fed Chairman Ben Bernanke supported the dollar. Speaking from Jackson hole, Bernanke said the recovery has softened more than expected and the Fed was ready to take further steps if needed to spur the stumbling economy. His comments laid to rest speculation over the central's banks decision to continue purchasing various financial instruments and inject added liquidity into the U.S. economy. The prospects of additional liquidity and the confirmation that the U.S. recovery had indeed hit a snag eventually weighed on the greenback.

This Week

Last week's upward revision in Q2 GDP growth will certainly not have been forgotten as analysts await the release of various economic fundamental releases. U.K. PMI manufacturing will like be the main local event as economists will want to see if a pickup in production can support the boost in construction that pushed growth higher in the second quarter.

E.U. GDP Q2 revisions today will be key for European traders, sentiment toward  the single currency has improved recently to support the Euro against the major crosses. An increase in growth in-line with that of the U.S. and the U.K. will be needed to ensure investor confidence remains intact.

U.S. employment figures will once again be closely watched as uncertainty over global economic conditions continues to plague markets. Employment is considered to be key to maintain economic recovery and limit the slowdown recently seen in the United States.

Any rates quoted in this email are for indication purposes only and not an offer to buy or sell currencies. Please call the Dealing Room on +44 (0)207 594 0524 or log on to BHOnline to obtain a real-time quote.

Dealing Room E-Mail: Corporatedealing@baydonhillfx.com

Web: www.baydonhillfx.com

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