08-06-2009 : FCG Market Report 8th June 2009
Last week saw the Pound gain ground against the Euro overall but it was a choppy ride. The GBP/EUR cross has proved to be a volatile one over the last couple of weeks, making it difficult to get a view on exactly when, or if, the current Euro weakness will continue.
At approximately 7am on Friday June 5th the Euro was at its weakest for two weeks, with one Euro worth 0.8870 pence at Interbank levels. At this time a rumour began to circulate that Prime Minister Gordon Brown was about to resign, you can see below this caused the pound to weaken in quite a dramatic way. Further to Mr Browns afternoon speech the Pound started to recover and in Monday’s trading has broken through the 1.15 barrier for brief moments.
Monday has seen further negative data from the Eurozone, with German factory orders down -37.1% worse than expectations. The German economy is being looked at by investors as a barometer, for the overall Health of the European Economy. Watch this week for the German Industrial production figures on Tuesday and the UK Trade Balance on Wednesday. Thursday we have the latest BOE quarterly bulletin and at noon on Friday Jean-Claude Trichet, the president of the European Central Bank, will make his speech. This will set the tone for the ECB’s view on Eurozone recovery and without any doubt be an influence on investors over the coming weeks.
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USD
The Pound initially advanced to a fresh seven-month high against the US Dollar, trading above the 1.6650 level on Wednesday. This coincided with further global stockmarket gains as investors' optimism of a global recovery increased. A 6.7% jump in April's US pending home sales was the largest since October 2001, prompting hopes of stabilisation in the US housing market.
However, the US Dollar strengthened sharply over the latter half of the week, with longer-term fears eased partly by remarks from Asian monetary officials that Asian central banks would still purchase US Dollar assets even if the US credit rating were cut. The Cable rate dropped back below the 1.60 level following Friday's better-than-feared 345,000 US job losses in May, which gave further justification to Federal Reserve Chairman Bernanke's optimistic assessment of the US economic outlook.
The GBP/USD rate closed down 1.29% at 1.5977, from 1.6185 a week earlier, benefiting those converting US Dollars into Sterling
The Pound is currently a sell,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. “A Brown resignation and the demise of the Labour party will, longer term, prove to be a Pound positive, so I would suggest selling the Pound now.” Meaning that if you are still holding off a money transfer to buy GBP you may want to review and bring your plans forward as your position may not be as strong again. Especially against the USD as on Friday they released surprising unemployment figures which strengthened the Greenback and confirmed the largest weekly fall in Cable for nearly three months.
AUD
The Reserve Bank of Australia left interest rates unchanged at 3% last week, but cautioned that there remains scope for future cuts if they become warranted as the economic landscape unfolds. The Australian economy avoided recession, expanding a better than expected 0.4% in the first quarter of 2009. The data supported views that the Australian economy is one of the better positioned for recovery. Continued commodity price strength and improved investors' optimism also gave support to the Australian Dollar over the latter part of the week.
The GBP/AUD rate closed at 2.013, down 0.3% from 2.019 a week earlier, benefiting those converting Australian Dollars into Pounds.
Business confidence data (Tuesday) and consumer confidence data (Wednesday) are scheduled this week. Thursday's labour market report may temper Australian Dollar strength if job losses in May were greater than expected.
This Week’s Data
Lots of data from the EU, US and UK this week. The most significant data is listed below, but the main events to watch for are:
Germany - The largest economy in the EU, figures from Germany can have a big impact on the value of the Euro and so affect GBPEUR exchange rates. Today we have Factory orders, and tomorrow Industrial Production. A good indicator of how these sectors are performing.
UK - House Price Data today, Wednesday sees Trade Balance, Industrial and Manufacturing Production. This will likely affect Sterling’s value, and of course ongoing political events will also continue to have an impact
New Zealand - Interest Rate decision on Wednesday, following by Retail Sales data Thursday.
EU - ECB Monthly report on Thursday, and also a speech by ECB president Trichet on Friday. Watch any comments carefully as surprise announcements could strengthen or weaken the Euro.
Monday
Ger - Factory Orders
UK - RICS House Prices
UK - BRC Retail Sales
Tuesday
UK - DCLG House Prices
Ger - Industrial Production
Wednesday
UK - Trade Balance
UK - Industrial Production
UK - Manufacturing Production
US - Mortgage Applications
US - Trade Balance
NZ - Interest Rate Decision
Thursday
AUS - Employment & Unemployment
EU - ECB Monthly Report
US - Retail Sales
US - Jobless Claims
NZ - Retail Sales
Friday
G8 Meeting
EU - Industrial Production
EU - Trichet Speech
US - Import Prices
EU - Trichet Speech