05-05-2009 : FCG Market Report 5th May 2009
Last week saw Sterling continue to strengthen against the Euro as we saw a movement away from safe haven assets, gradually climbing from 1.10 to 1.13 at mid-market level. The main events of the week were business and consumer confidence data from the Eurozone, which undermined the single currency, as key economies such as Germany and France are still in a state of economic decline.
In the week ahead, we see interest rate decisions from the Bank of England and European Central Bank on Thursday, where we anticipate a hold at 0.5% from the BoE, and possibly a 0.25% cut in the base rate on the continent, leaving the base rate at 1%. This should weaken the Euro as investors will be getting a lower yield on their deposits, however if either central bank deviates from market expectation, we could see wild swings in the rate as the figures are released.
Other data releases ahead are PMI data from the Eurozone on Wednesday, and Core PPI inflation data from the UK on Friday morning. With all signs pointing to a difficult week ahead for the single currency, clients buying Euros may wish to stay in regular contact with their FCG Account Manager in order to secure the optimal rates of exchange.
USD
Weekend trading saw the interbank Sterling/US Dollar/ pair climb towards and break through the previous resistance level of 1.50. With the UK and European markets back in full swing after their respective bank holidays, The US Dollar has continued to lose more ground against sterling.
This week ahead sees a number of US key data releases that would be considered “Risk Events” i.e. likely to affect trading levels and or investors in the US.
On Wednesday, the US April layoffs are out, followed on Thursday by the US Jobless claim and Consumer Credit figures. These releases alone will give a good indication on the current direction of the US economy. Friday sees the release of the monthly Non-Farm Payrolls data for April, the fundamental measure of employment in the USA.
Sterling strength against the Dollar looks set to continue this week with the only possible upset being Wednesdays BOE inflation report.
Looking forward for the US Dollar and the reputation of the Greenback as a safe haven foreign currency, the perception that the US has enough strength and reserves as an economy to weather any storm needs to remain intact.
Investors are eagerly awaiting the results of the US Bank Stress Testing originally due to be announced Monday 4th, these have been delayed while regulators decide how best to deliver the information, fearing potential collapses in share value for the Banks who are not up to scratch. Mark Tenhundfeld a senior vice president at the American Bankers Association summed it up, recently quoted “Everybody understands they’ve got a tiger by the tail here,”
Regulators have tested 19 of the Largest Banks in the US to see if they hold sufficient reserves should the recession worsen. It is expected that almost half will need to raise more Capital.
To underline the impact these 19 Banks have on the stability of the US economy, they hold between them two thirds of all US bank assets and almost half of all US loans.
To professionally manage your currency exchange needs in these uncertain times, talk to your FCG Account Executive today about our suite of risk reducing products.
AUD
The Australian Dollar initially weakened against the Pound last week, with escalating concerns over a swine flu pandemic leading investors to seek perceived safe-haven asset classes. The Australian Dollar later recovered many of these losses alongside a rally in global stock markets, with a second month of Chinese manufacturing expansion (one of Australia's largest trading partners) interpreted as one of several encouraging indicators for the global economy. The domestic data was less encouraging with business confidence at an all-time low, although home sales improved in March.
The GBP/AUD closed on Friday at 2.041, up 0.7% from 2.027 a week earlier, benefiting those converting Pounds into Australian Dollars.
Wednesday's retail sales and international trade data, as well as Thursday's employment data are key releases this week. Retail sales and employment prospects are expected to deteriorate further, although the Australian Dollar could lose support if this trend appears to be gathering momentum.
Key Data Releases This Week
This week is a very busy one for both UK and EU economic data. We expect some big movements in GBPEUR rates. Today and tomorrow we have various inflationary measures for both zones, which will of course influence the most important economic events of the week, the Interest Rate Decisions for the UK and EU.
UK rates are already very low, thus we may not see any further movement here. We may however see announcements for more Quantitiative Easing, which may well weaken the pound and cause rates to fall.
The EU rates are currently at 1.25%, and so there is scope here to make changes. We may see a cut in rates, to bring them more in line with the UK and US, however by how much they cut will depend on the other data releases today and Wednesday. Based on the EU situation alone, you might expect GBPEUR rates to climb, however we also need to closely watch any comments from the Bank of England, which could pull Sterling in the other direction.
"People don't want to take a position on sterling due to the risk of the BoE extending its asset buying programme," UBS currency strategist Geoffrey Yu said.
Below is a summary of the week’s data. If you would like to know the effects this data could have on your specific requirements, then please get in touch.
This Weeks Data
Today
Aus - Building Permits
UK - PMI Construction
UK - House Price index
UK - Producer Price Index
UK - Nationwide Consumer Confidence
EU - Producer Price Index
Wednesday
Aus - Retail Sales
Aus - Trade Balance
Ger - Purchasing Managers Index
UK - Purchasing Managers Index
EU - Purchasing Managers Index
NZ - Unemployment
Thursday
Aus - Employment & Unemployment
UK - Interest Rate Decision
EU - Interest Rate Decision
Friday
Swiss - Unemployment
UK - Producer Price Index