Foreign Currency Exchange Report 17 September 2010

17 September 2010

 

Sterling

 

After being buoyed in Wednesday's trading by the buying of Sterling by the Bank of Japan, the Pound exchange rate took a hammering in volatile conditions yesterday, partly on news that the flamboyant Freddie Flintoff was finally hanging up his pads after an illustrious career. The main contributing factor, however, came as Retail Sales suffered an unexpected drop in August, the first monthly fall since January this year. UK sales dropped 0.5 percent last month from July, when they rose 0.8 percent.

 

Given that economists predicted a 0.3 percent increase, this has prompted many to raise fresh fears over the UK witnessing a dreaded double-dip recession. This is derived from the opinion that the data reflects a growing worry that UK consumers may be reigning in their spending ahead of the proposed spending cuts later this year.

 

Despite stubbornly high inflation and an increased likelihood of the Bank of England hiking rates the mood in the markets is certainly one that is more geared toward growth prospects. Recent reams of negative data are fuelling the idea that things will get tougher in the UK when austerity measures cut in next month, prompting many to speculate the UK will post a disappointing third quarter GDP figure.

 

Euro

 

The Euro put in a solid performance in yesterday's trading posting decent gains against most major currencies, including a 7 week high against the Pound. Most of the direction for the single currency was attributed to the support received from a strong Spanish bond sale. Considering the much maligned state of the Spanish economy the successful debt auction eases lingering concerns about whether the Euro-zone's peripheral countries can manage their huge debt burdens.

 

In addition to this the Euro also received decent support as China was thought to be seen to be buying the Euro to ultimately weaken the US Dollar exchange rate. This speculation comes amid China attempting to stem the continued appreciation of its currency so as to keep exports competitive.

 

Today this morning we have PPI prices.

 

US Dollar

 

We have seen the Greenback weaken off across the board this week, generally as we see an unwinding of US Dollar positions as global conditions improve. In the same way that we saw the Dollar exchange rate strengthen at the height of the crisis, we will likely see the exact opposite, as normal global economic conditions gradually resume.

 

At present, the US is at the centre of the storm regarding currency manipulation and focus is currently sharply on this. With China being held to the sword for its consistent manipulation of their currency to keep exports competitive, the global sheriff is now turning the heat up on Japan for doing the same. This is causing much disdain as artificially manipulating ones currency not only distorts organic global demand, but also implicates on other currencies, the US Dollar in particular.

 

Since the US Dollar has been the puppet for investors and traders the world over the past two years, when such issues are in the spotlight it often promotes any significant data to appear seemingly erroneous, as wider global issues influence and usurp any dollar direction. With inflationary data out of the US today we could see some movement, however, more than likely events going on elsewhere will dictate play.

 

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