Daily currency update courtesy of Halo financial

(Catharine Higginson) #1
Andy Murray beat Roger Federer to win the Rogers Cup in Toronto and the British swimming team had great European Championship in Budapest. It was in fact a good weekend all round, especially for lowly Blackpool who hit the premiership with all guns blazing. I love it when a plan comes together don’t you.

As for the financial markets, well Sterling had quite a good week last week against all but the US Dollar which is the centre of attention. A series of neutral or negative central bank reports and a flurry of poor data made traders take profit on their ‘short USD’ positions and actually buy into the US Dollar as the safe haven of choice amongst international investors. As a consequence, Sterling slipped from a high of almost $1.60 on the 6th August to a low of $1.55 this morning and $1.55 marks an interesting pivot between Sterling bullishness and Sterling bearishness, so the events of the week ahead could be highly significant for both currencies.

The winners of last week, alongside the US Dollar, were the other paragons of safe haven-ness; the Japanese Yen and the Swiss Franc. This led to talk of the Bank of Japan selling Yen in order to try to weaken their currency and give their exporters a better chance of success in overseas markets. The Swiss National Bank doesn’t have the luxury of funds available to sell the Swiss Franc for the same reasons; they have already declared they are short of reserve funds for such a purpose so more pain is likely for the Swiss exporters. Your Toblerone and Rolex could well go up in price along with your cuckoo clock collection.

Sterling is also seen as a ‘buy’ in this nervous environment more because it has been so heavily sold in the last two years than because of any major love for Sterling. However, the cost cutting measures being implemented by the Clegg-eron coalition are being well received amongst the analysts and forecasters in financial institutions around the world. Tuesday’s inflation data should show a slight easing of pressure and the Bank of England’s minutes, released on Wednesday are likely to show further turmoil within the Bank of England’s Monetary Policy Committee as Mr Sentence is bound to have voted for an interest rate hike whilst the other 8 members are likely to have stood their ground on ‘no change’ to the base rate.

In Europe, the ongoing nervousness over Greek debt, warnings of further problems elsewhere by the International Monetary Fund and others and the general market aversion to risk are all weighing on the Euro. However, the fact that the Euro didn’t collapse when Greece’s economic data showed a larger that forecast contraction, may be seen as quite positive for the Euro. It has certainly not dropped against the Pound beyond €1.22 yet but that could possibly happen this week if the UK data is positive and after this morning’s EU inflation showed a rise to 1.7% on the HICP measure. This was in line with expectation.

In other markets, the Australian Dollar is weaker this morning but still within the existing trading range against the Pound ahead of tonight’s release of the minutes from the last Reserve Bank of Australia meeting. As you may remember, they left their interest rate on hold and we are keen to know what they see as the path for Australian ec9onomic growth and inflation in light of China’s slowing economy and the more negative tone of the US policy makers.

The same could be said of the New Zealand Dollar although that appears to have broken a year long term trend against Sterling and we could possibly be poised for a more significant rise in the Sterling - NZ Dollar exchange rate. It is not certain yet but the fact that we ended last week above NZ$ 2.19 may well be a signal to future direction.

The Canadian Dollar weakened for the whole of last week but found buyers when it hit the top of the trading range it has occupied for the whole of the last year against the Pound. Failure to break above C$ 1.64 marks quite a significant point in the Sterling - CAD exchange rate and if history repeats itself, as it very often does in the foreign exchange market, we should now see a fall back to C$ 1.55 or thereabouts before any further gains can happen in this pair.

And I must say, it may be an obscure comment but I am delighted that mixed sex wards are being scrapped in hospitals. When someone has already lost a little of their dignity and independence in being unwell and unable to care for themselves, I have always felt the last thing they needed was to have members of the opposite sex around while they were being treated, bathed etc. Common sense and common decency appear to have prevailed at last.

Have a great week everyone.