IFX Market Report for 22/08/2012

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    UK News

    The UK released weak Public Sector Net Borrowing data which suggests the UK economy is slowing down and the euro was given a boost after Spain had a positive bond auction.After reaching a high of 1.2729 during the morning GBPEUR has since fallen to the lowest level in almost two weeks. US markets opened yesterday, and the pair posted an overnight low of 1.2641 after being dragged down by EURUSD movements created from more support on buying Spanish bonds.

    The UK government unexpectedly had to borrow money in July, traditionally a good month for tax receipts, further knocking Chancellor of the Exchequer George Osborne’s efforts to rein in the budget deficit. Fitch Ratings Agency responded and repeated comments from earlier this week that the UK’s triple-A rating could be at risk if the government diverges from its plan to cut the country’s budget deficit.

    UK manufacturers expect to hold output levels steady over the coming three months as new orders sank to the lowest level in 2012, reflecting a steep drop in overseas demand.

    Sterling benefitted from increased investor risk appetite and broke out of its range bound activity seen since early July. GBPUSD reached a high of 1.5802, a level not seen since May 22nd, the next key resistance level can be seen at 1.5818 and strong technical support at 1.57 could provide a solid platform for a higher trading range from 1.57-1.59.

    International News

    The euro rose to six-week highs against the dollar and yen before regional leaders meet this week to discuss Greece’s fiscal adjustment program amid optimism in the markets that the European debt crisis is starting to be contained.
    Fitch Ratings Agency said the weakest Eurozone countries were likely to face rating downgrades by the end of the year if there was no progress made on finding a resolution to the Eurozone crisis.

    The EURUSD rallied to a fresh monthly high of 1.2487 as ECB board member Jorg Asmussen endorsed an unlimited bond purchasing program to tackle the debt crisis, news was also leaked that Greece may get an extension to meet its budget target as European leaders convene this week.

    Spain sold €4.5bn of 12 and 18 month bills. The average yield on the one-year securities was 3.07%, compared with 3.92% at a previous auction on July 17.

    The US dollar weakened against all but one of its 16 major counterparts before a report today which is forecasted to show US home sales improved last month.

    Canadian wholesale sales shrank unexpectedly in June, the first drop in five months, yet Canada’s dollar appreciated to the highest level since May against the USD of 1.0148 as crude oil and global stocks gained amid speculation Europe’s debt crisis won’t deepen.

    Sweden’s krona gained as a central bank official said economic growth has been “unexpectedly” strong this quarter and the currency has strengthened more than estimated. The central bank has cut rates twice since December as Europe’s debt crisis begins to threaten an expansion in the largest Nordic economy.

    The South African rand gained for the first time in three days on speculation euro leaders will make progress on Greece’s debt crisis, stoking demand for riskier assets such as ZAR. GBPZAR had advanced over 3% in a week to trade at a 3 week high at 13.10 yesterday.

    Exports in Japan fell more than expected. Key among the various measures the decline since July last year was 8.1%, a decline of 2.9% was expected. The global slowdown has hit the Japanese economy hard and GBPJPY hit 125.49 yesterday, the highest level in six weeks.

    Daniel Fountain / 21.08.2012

    Editor, Hotel Designs


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