This week’s session has started with the return of a strongly ‘risk on’ trading environment, following the weekend announcement from the eurogroup of Finance Ministers that it is set to make up to €100bn of emergency loans available to Spain’s debt-troubled retail banking sector.
Foreign Currency Market Update – GBP / USD Update
The GBP USD exchange rate continued to improve from the 5 ½ month low of 1.5268 which it reached on the first day of June during last week’s session in the currency markets. Last Wednesday was a particularly good session for the pair, with GBP USD trading up by almost 1.5c at one point thanks to comments from European Central Bank President Mario Draghi, in his post rate-decision press conference, which investors interpreted as hinting that the ECB stood ready to further loosen its monetary policy. The mere suggestion that further ‘easy money’ was set to be pumped into the global financial system send stock markets spiralling at the expense of the safe-haven Greenback.
Thursday’s announcement by the Bank of England that it would not be increasing the £325bn already allocated to its Quantitative Easing programme provoked a renewed bout of support for Sterling, sending GBP USD to its weekly high at 1.5601. Meanwhile, Federal Reserve Chairman Ben Bernanke’s comments to Congress the next day elicited considerable volatility for the Dollar; Bernanke stated that the Fed stands, ‘prepared to take action as needed to protect the US financial system and economy’, suggesting that another bout of QE may be on the cards in the States. However, he stopped short of saying that there would be a pre-emptive easing of US policy in an attempt to head off future shocks to the world’s financial systems from the eurozone. Overall, Bernanke’s comments were judged to be Dollar-negative.
This week’s session has started with the return of a strongly ‘risk on’ trading environment, following the weekend announcement from the eurogroup of Finance Ministers that it is set to make up to €100bn of emergency loans available to Spain’s debt-troubled retail banking sector. The news saw Tokyo’s Nikkei 225 stock index gain 2.44% during last night’s Asian session, and share indices are generally trading up by over 1% in continental Europe today. This spells bad news for the Dollar and could send GBP USD up towards the band of resistance which it has previously encountered between the 1.5630 and 1.5700 levels. However, caution is advisable for clients needing to buy US Dollars in the near-term, as many analysts are already dismissing the emergency funding for Spain’s banks as a ‘patch-up job’; further bad news out of Europe could easily send GBP USD back down towards its key interim support at 1.5268.
Summary of major upcoming data releases that we think may move the market.
- The Pound advanced against the Dollar as global risk appetite continued to improve
- Foreign Currency Exchange Rate Forecast – The Pound continued to decline against the U.S Dollar
- Sterling Euro US Dollar Foreign Currency Forecast – The pound continued its current downward trajectory
- The Pound continued to slide against the US Dollar last week
- The Pound continued to edge closer towards 1.20 versus the Euro