Up and down like Zebedee on a bungee rope; that is pretty much what is happening in the markets at the moment. Sterling gained and lost a cent or two on most exchange rates yesterday as each new wave of data gave enough impetus to prompt some trading but sadly not enough to change the current trading ranges.
That data came in the guise of a pretty positive German Ifo business sentiment index showing business expectations are still relatively strong. This is in spite of a series of negative reports from elsewhere in the Eurozone and it sees the German economy pushing even further ahead of its partners in the 16 strong group. That can only exacerbate the antagonism between German taxpayers and the governments of Greece Spain and Portugal which are being supported indirectly by German funds. The Euro remained in the same pattern its has occupied all month.
Yesterday’s disappointing US Durable goods report kept the US Dollar on the back foot but wasn’t seen as so bad that it was reason to dump the USD. The improvement in the level of fresh unemployment claimants helped but US Shares fell on the news. However, bonds were largely unmoved and it is the bond market that appears to drive the value of the US Dollar at the moment. This data was no more than a warm up to today’s release of the 2nd revision of the US economic growth data for the 2nd three months of this year. The first guess at this number gave us a 2.4% growth estimate but the 2nd and more thorough estimate is expected to move that down to 2.1% ish; a result which would weigh heavily on the US Dollar and the currencies that rely on the US economy, like Canada’s Dollar. We will also have a very heavily hyped speech from the head of the US Federal reserve this afternoon and that has the potential to significantly shift economic expectations and therefore, the US Dollar. With so much debate over whether the US economy could slip back into recession, this is the big news for the month so be ready to be alarmed. Risk-averse US Dollar buyers and sellers might want to make a move before the numbers just in case they get an adverse reaction.
In the UK, we also have GDP (economic growth data) today. We too will see the 2nd round calculation of the Q2 data and we are nervous of the release. Traders will have a day to react to the numbers before a long weekend break and then just one day of trading before the end of the month. This is a recipe for volatility if ever I saw one. As mentioned yesterday, situations like these are prime candidates for automated market orders which can capture an attractive exchange rate even if it happens outside UK trading hours. The next three days of trading have the potential to be some of the most volatile in the entire year so the right strategy for your particular circumstances is crucial to achieving a beneficial exchange rate.
In other markets, the Japanese Yen is occupying a lot of column inches as the strength of the currency is causing concern for the Japanese authorities. The Bank of Japan has apparently been told to consider its options to weaken the Yen and rumours abound in the market over whether the BOJ has been ‘checking prices’ with major brokers; a tactic designed to unnerve those seeking to further strengthen the Yen. The knock on effect is that strength in the Yen tends to weaken the likes of the Australian and New Zealand Dollars. That appears to be happening although, as far as the Pound is concerned, this is within recent ranges. Whether that will be the same after today’s UK growth data and whether the Bank of Japan will get off its collective backside and actually throw some money at the market is open to debate.
The Canadian Dollar has strengthened a tad as oil prices have advanced to higher levels in the last few days. However, poor US data is enough to keep Canada’s export prospects on the back fot so any gains in the Canadian Dollar meet stiff resistance.
And finally, for those heading off to the festivals over the weekend, wetsuits are, I’m told, the order of the day along with amusingly patterned wellies and throwaway tents. At £10 a time, many of the tents are deemed too much of a hassle to take home so people leave them on site. The Police at Reading are planning to gather them up and dispatch them to Pakistan to help with the flood relief effort. Excellent work from the boys in blue.
Have a great weekend everyone; see you Tuesday.