Foreign Currency Exchange Report 07 September 2010

07 September 2010

 

Sterling

The Pound received a hammering across the board yesterday as it lost ground against 16 of its most traded peers and declined for the fifth straight day in a row against the Euro.  Economic data in recent weeks has been patchy at best, and many continue to speculate how the proposed spending cuts will impact on economic growth and consequently the Pound.

This inconsistency was reinforced yesterday toward the downside as figures showed new car registrations in the UK plunged last month 17.5 per cent from this time last year. This is a particularly worrying fact as it shows consumers are less willing to spend than a year ago when economic fundamentals were arguably much worse.

With the Bank of England policy meeting coming up later this week, this prompted many analysts to suggest that the nine strong committee could genuinely consider injecting further quantitative easing to stimulate the economy and prevent any further contractions in growth. In simple terms this spells trouble for Sterling.  Given that Sterling touched a 6 week low against the Euro, and the fact that currencies are supposed to reflect upon future conditions, do not be surprised if the Pound exchange rate falls even further.

Out later today we have retail sales figures, which have been surprisingly robust over the past months. Any notable decline here will almost certainly see Sterling tumble further.

Euro

In a fairly quiet day yesterday the Euro dipped after touching a three week high against the US Dollar, buoyed by Friday's US jobs data. Recent swathes of economic data have surprised on the upside, helping the Euro regain some much needed credibility.

With the ECB last week raising its 2010 economic growth forecast to 1.6 per cent from its previous prediction of 1 per cent, it is now well ahead of the US in terms of growth prospects. Over the short term there is certainly much to argue for a strong Euro especially given how Germany is dominating.

However, the Euro-zone is synonymous for sweeping issues under the carpet, and it is hard not help but feel there will be further repercussions from sovereign debt issues in Greece. At present they are just managing to meet the interest payments on the debt, however, when the next large debt repayment comes up, do not be surprised to see the Euro hurt as the jittery market worries over the ability Greece has to meet its debt obligations.

Out of Europe today we have German factory orders, however, already in this morning's trading the Euro has lost early ground on concerns sovereign debt risk will hinder the fiscal health of banks, after an industry group suggested Germany's ten largest lenders needed to bolster their capital.

 

US Dollar

The US Dollar was little changed yesterday as traders took the US Labor Day to debate in what regard to hold the Greenback. With improving global conditions backed up by stronger than expected US jobs data and Chinese economic fundamentals we saw an upturn in risk appetite weigh on haven demand for the US currency. This ultimately leads to a broadly weaker Dollar.

The payroll data released out of the states on Friday which showed fewer jobs lost than expected eased the market's recent anxiety over a global slowdown, and boosted demand for higher yielding currencies like the Australian Dollar.

Investors will this week look to focus on Obama's 50bn infrastructure plan, which is aimed at generating some desperately needed job growth and also its attempts to salvage a landslide Democratic loss in the upcoming congressional elections.

 

Please contact Foreign Currency Exchange on +44 (0) 207 989 0000 to discuss your currency exchange requirements.