IFX Market Report for 16/08/2012

    150 150 Daniel Fountain
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    UK News

    The pound enjoyed a rally against the euro yesterday afternoon helped by UK jobless claims weakening and the Bank of England minutes showing a unanimous vote to maintain its current policy in August. Between 07:00 and 13:00 GBP moved from 1.2714 to hit a two week high of 1.2780.The single currency struggled for a number of reasons, chief among which are a change in the focus of Marian Rajoy’s pledges towards Spain’s budget deficit, BoE Governor King’s choice to avoid a discussion on UK interest rates, and the French and Italian mid-week bank holiday.

    Against the dollar GBP traded within a 42 pip range, which is the tightest range for five years. Cable saw a high of 1.57011 and a low for the day of 1.5659. In pre-market trading GBP/USD is lower than yesterday’s close, but the 12 hr range remains tight.

    The pound’s very slight rally against the dollar was helped by an unexpected weakening in UK jobless claims by 5.9k for July. It seems GBP/USD will follow the range-bound price action witnessed in June as ‘cable’ struggles close above the 200 day moving average of 1.5716. For the past three days GBPUSD has closed unchanged.

    Bank of England Deputy Governor Charles Bean has argued that the central bank’s QE programme is working, but he did concede that it is hard to quantify the impact of the program on the broader economy.

    This morning UK retail sales did not increases in July and came out with 0% growth despite London hosting the Olympics. This helped GBPUSD climb to 1.5706 and GBPEUR hit 1.2790 off the back of this as investor clearly feared to worst and a drop in sales.

    International News

    There was no data released for the Eurozone yesterday, but the dollar made gains on the back of the bank holiday nonetheless. EURUSD peaked at 1.2274 by 10:00 having begun the morning at 1.2343; whilst CPI came in roughly in line with expectations, the additional soft data for The States simply compounded USD’s advantage.

    The dollar also improved against the Yen, achieving a one month high of 78.99. It has been suggested that the better than expected U.S retail sales released week may not be enough to stop the Fed adopting further Quantitative Easing this September, until we see further signs of the economic picture the jury is still out.

    If USD continues to hold up against JPY until next week then it will represent two bullish weeks in a row and, according to ADS Securities, could be a sign of something bigger. 79.60 – 79.80 might be achieved in the near term
    Although monetary easing seems less likely in the near term for the United States, Canada has been able to tempt the market with promises expanding exports. CAD/USD traded at it’s highest level since May, better than 1.01 for the ninth day in a row.

    GBPCHF has moved clear of 1.53. July saw an 11.3% increase in the SNB’s foreign currency reserves, and this was in the pursuit of defence of the minimum exchange rate versus the Euro.
    Whilst speculation over a Greek exit from the Eurozone is nothing new it seems that the time frame is getting ever smaller, with a number of pundits arguing that Greece won’t be able to weather the volatility due after the Med’s return from summer holidays. September is considered crunch time, again.

    The Melbourne Institutes Inflation Expectations report suggests that the pace of price inflation for good and services will contract from 3.3% to 2.4%. EUR/AUD remains at multi year highs in excess of 0.85, and, versus GBP the AUD still manages to keep the pair below he 1.50 mark.

    Daniel Fountain / 15.08.2012

    Editor, Hotel Designs


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