US Dollar:
The Dollar was under pressure this morning, losing ground against most other currencies. A G20 meeting and U.S unemployment data maintained the view that interest rates in the U.S would stay low for a while, pushing investors to look to AUD, NZD and shares instead of the USD. Although U.S non-farm payroll data showed a rise in unemployment, stocks and other risk assets showed signs of promise, prompting traders to unload the U.S currency and weaken it further. As a series of major economic events come to a close the sentiment was that it is now acceptable to start selling the dollar. The recent relatively positive rate decision in the U.K and £25 billion quantitative easing all helped to strengthen the pound against an already ailing dollar, pushing GBP/USD up to 1.6770 this morning, although the view on sterling remains bearish in view of the poor state of the British economy. The Euro also edged towards a year high against the dollar, EUR/USD currently 1.4964.
Pound:
Sterling is looking stronger this morning against the Euro trading more than 20 points higher and nearly 200 against the USD since Friday’s close. Sterling is benefitting from some increased appetite for risk amongst investors in addition to optimism over the Bank of England’s decision to only increase QE by £25bn rather than the £50bn some had feared. However medium term concerns still persist over when QE will come to an end and interest rates will start rising again, a move currently being hampered by reduced prospects for a return to growth amongst the UK economy. The chance that the BoE may decide to increase QE further could see a fresh rally for the Euro against the pound as the European Central Bank hinted last week that it could start exiting its strategy as early as next year, information our central bank has not provided to the market. This will continue to provide the Euro with more support against the pound. To make matters worse for the UK there are continued concerns over the UK government decision to throw more money at the UK banking system and the rising prospect of serious fiscal tightening (cut in government spending) next year, which is likely to remove a lifeline particularly for employment figures. There is no UK data until tomorrow when we see the release of trade balance numbers expected to be improved at –6.1B from -6.2B in Oct. This data is the difference in value between imported and exported goods so anything less severe will show an increase in exports for the UK, one tactic being employed by the BoE to help generate growth and a positive effect of having a weak pound. Now may provide an ideal time to take advantage of some short term strength for sterling particularly against the USD before Wednesday’s key quarterly inflation release.
Euro:
The Euro looked strong this morning against other movement from the majors and positive Euro data was released. German exports were up 3.8% from August and imports showed an increase of 5.8% to EUR 59.4 billion in September. Although U.S consumer appetite was yet to return in full force, signs that Global trade was staging a recovery was backed up by trade reports in Europe as well as China, helping to support the Euro this morning against the dollar and yen. The Euro was also strengthened against the dollar as a result of an increase in short term buys in the common currency as stronger regional share markets emerged. EUR/USD nearly a percentage rise to 1.4957 this morning. The pound found its own strength against the single currency, with current optimism in the BOE’s recent quantitative easing decision helping to push GBP/EUR up to 1.1206 this morning, but bearish sentiment remains for sterling. Traders suggest the EUR could easily regain ground against GBP as the BOE and ECB’s policy directions continue to diverge, combined with continues fiscal deterioration that is expected to take place as the government keeps ploughing money into the banking system, raising the prospect for serious fiscal tightening next year.