Up and up and up. The Pound to US Dollar exchange rate hit another fresh 4-month high yesterday, rising to 1.6131, as the German Court’s decision to ratify the new Eurozone rescue fund improved risk appetite and sent the US Dollar down versus a whole basket of riskier currencies.
• ESM ratified by German Court – GBP/EUR falls to 2-month low.
• UK Claimant Count falls – UK economic outlook improves.
• Fed data released later today – QE3 or not QE3, that is the question.
• RBNZ hold 2.50% interest rate – NZD largely unchanged on decision.
The UK Claimant Count beat analysts’ expectations and declined by -15,000 during August, which relieved some pressure from the recessionary UK economy. The fall in dependent Britons sits nicely within a recent trend of UK optimism and stands to benefit the Sterling currency. Although the encouraging employment figure is thought to have been carried higher by a surplus of temporary jobs related to the Olympic Games in London, the overall feeling is of strength going forward.
The headline event to look out for today comes from America where the Federal Reserve will make an announcement with regards to its monetary stimulus plans. If the quantitative easing cycle starts rolling again then expect Sterling to gain versus the US Dollar but be mindful of depreciations elsewhere, especially the higher-risk currencies which could rally against the Pound if risk sentiment is suitably stoked.
Like a dark rain cloud on a summer’s day, the German Constitutional Court’s hearing on the legality of the European Stability Mechanism had threatened to spoil Mario Draghi’s parade. Luckily for Draghi, and the many fans of his bond-buying programme, Germany deemed the bailout fund acceptable and in response markets rallied and the Euro gained around 0.6 cents against the Pound.
Although the headline from the court case was unequivocally positive, it was accompanied by a set of conditions which were not so overtly optimistic: there will be a cap of €190 billion on Germany’s contribution; both houses of German Parliament must be informed of all ESM decisions; the German government will have the power to terminate the ESM at any time; and there will be an explicit ban on the ESM borrowing directly from the European Central Bank.
Essentially, the explicit ban on ECB lending renders calls for the ESM to be given its own banking license impossible. However, this notion was already unlikely to happen anyway. German Chancellor Angela Merkel mirrored market sentiment towards the Euro as she stated: “Germany can only do well if Europe does well. It is a good day for Germany, and a good day for Europe.”
Up and up and up. The Pound to US Dollar exchange rate hit another fresh 4-month high yesterday, rising to 1.6131, as the German Court’s decision to ratify the new Eurozone rescue fund improved risk appetite and sent the US Dollar down versus a whole basket of riskier currencies. QE3 bets also enacted to send Sterling higher and if the Federal Reserve endeavour to embark on a new round of asset purchases then the Pound’s strong performance against the US currency could become even more pronounced.
The Pound improved by around 1.2 cents against the Canadian Dollar yesterday as the ‘Loonie’ fell victim to traders around the world who were looking to invest in other currencies. Both the Australian Dollar, and New Zealand Dollar were bought against the Canadian Dollar and so was the Euro. Some areas of the market were even flogging the ‘Loonie’ in order to invest in US Dollars in case the Fed disappoints stimulus calls, which could lead to safe haven gains for the US currency. All in all this enacted to leave the Canadian Dollar unsupported against the Pound yesterday.
Sterling appreciated by around 0.5 cents against the Australian Dollar yesterday as the UK economic climate continues to improve despite falling into a double-dip recession in the second quarter. However the Australian Dollar’s prospects did pick up on comments from Chinese Premier Wen Jobao, who announced that China has plenty of room for new stimulus, if needed, to meet its growth targets. As the Australian economy’s closes trade partner, any good news from China is treated as good news for the Antipodean currency.
New Zealand Dollar
Last night the Reserve Bank of New Zealand’s policy rate decision went just as markets had expected it to; with the bank maintaining its benchmark interest rate of 2.50%. Governor Alan Bollard cited exterior influences as justification for not introducing a rate hike:
“New Zealand’s trading partner outlook remains weak. Several Euro-area economies are in recession and Chinese growth has slowed. The risk of significant deterioration in the Euro area persists.”
Manufacturing PMI in New Zealand fell from 49.4 to 47.2 in August but the New Zealand Dollar was largely unaffected by this nor the interest rate decision as traders await the outcome of today’s Federal Reserve announcements.
Data Released Today
13:30 USD Initial Jobless Claims (SEP
13:30 USD Producer Price Index Ex Food Energy (YoY) (AUG)
17:30 USD Federal Open Market Committee Rate Decision (SEP 13)
19:00 USD FOMC to Release Projections of Economy and Fed Funds Rate
19:15 USD Fed’s Bernanke Holds Press Conference
- Pound to Euro, US Dollar exchange rate: The Pound to US Dollar exchange rate briefly rose above 1.5900 to mark a fresh 3-month high of 1.5912
- The Pound has pushed to a five month high against the U.S Dollar and achieved a fresh 19-month high versus the Euro
- The Pound rallied to a fresh 9-month high above 1.19 against the Euro exchange rate
- Pound to Euro, US Dollar exchange rate: The Pound to Euro exchange rate reached a fresh three-and-a-half year high of 1.2832
- Pound to Euro, US Dollar exchange rate: The Pound to Euro exchange rate reached a fresh three-and a-half year high