is4profit Weekly Currency Roundup (10th August 2012)
Another week rolls by and the London Olympics are nearly at an end. But is there any feelgood factor in the currency markets and who’s winning the gold, silver and bronze medals this week?
The Euro has had a good week as a glimmer of hope and optimism on the markets allowed the single currency to recover some of the losses it has made thanks to the Euro crisis. The optimism came after rumours circulated that the European Central Bank could begin its bond buying scheme in a bid to lower the borrowing costs for nations such as Spain and Italy. The period of gains is very tenuous however thanks to the continuing worries over the state of the region.
Rumours continue to circulate that Spain could request a full scale sovereign bailout and worries over contagion spreading persist. Poor economic data out of most of the Eurozone members dragged on the currency midweek, with news that the Bank of France expects that the nation will enter recession in September.
A weak set of figures out of the regions workhorse, Germany also did little to inspire confidence. Despite all this though traders and investors are clinging onto the hope that the situation can be eased by the ECBs bond buying scheme. At the beginning of the week the Euro posted a one-month high against the US Dollar before stabilising in the 1.23 range. Against the British Pound the Euro began the week strongly but retreated following an upsurge in the Pounds favour thanks to the Bank of England’s inflation report.
The Euro has continued to rise slightly against the US Dollar and the Japanese Yen as investors speculate that economic data due to be released from China will beat expectations and fuel the demand for riskier currencies. Traders are expecting China’s industrial output to rise to 9.8%, up from the 9.5% in June. Despite the rises, the Euro remains on a long term downward trend thanks to the ongoing Euro crisis.
The US Dollar began the week down against a number of currencies following last week’s release of the better than expected job figures out of the country. Optimism out of Europe also dragged down on the currency as risk sentiment improved. Demand for the safe haven dollar slumped whilst the riskier commodity based currencies gained in strength.
In mid-week the Dollar weakened further following German Chancellor Angela Merkel publicly backing the European Central Banks bond buying scheme despite strong opposition from members of her own political party. As a result the New Zealand Dollar hit a three- month high against the Greenback, The Australian Dollar hit a four-month high and the Japanese Yen also posted gains. At the end of the week the US Dollar made gains against the British Pound following the disappointing news that the Bank of England slashed its growth forecast for 2012.
The Pound started the week trading at a one-month low against the Euro after sterling was undermined by a series of disappointing economic reports. British house prices fell more than expected last month, and surveys last week showed growth in Britain’s dominant services sector slowed last month while manufacturing activity shrank, suggesting a poor start to the third quarter after the economy contracted more than expected in the first half of the year. Wednesdays Bank of England inflation report highlighted the scale of the UK economies problems with the BoE slashing its growth forecast for 2012 from 0.8% to near 0%. Despite all of the negative data the Pound managed to post gains against of basket of currencies on Thursday thanks to the markets kneejerk reaction to the news that the Bank has dismissed making further interest rate cuts. . It is expected that the Pound will once again fall against a basket of currencies as the initial surge stops and the countries poor economic performance weighs on confidence.
The Japanese Yen spent the week relatively steady in the 0.0127 range against the US Dollar. It dipped a few times over the course of the week as investors took more chances on the commodity based currencies and as risk sentiment improved thanks to the European Central Banks bond buying plans.
The Yen could make gains next week if the run of poor economic data out of Europe continues and causes investors to worry, sending them back to the Yen for its safe haven status.
This week saw the Australian Dollar hit its highest level since March against the US Dollar after being buoyed by better than expected economic data out of the United States last week. So far this year the Australian economy has been one of the best performing in the world with economic growth being solid.
The currency continued its strong run after the reserve bank of Australia decided to maintain interest rates at the 3.5% level. The good news for the Australian economy continued near the end of the week thanks to the release of better-than-expected employment data for July. Traders increased the value of the ‘Aussie’ as speculation that the Reserve Bank of Australia would make further interest rate cuts waned. Unemployment fell to a lower-than-expected seasonally adjusted 5.2% in July from an upwardly revised 5.3% in June, while the number of people employed rose by 14,000.
New Zealand Dollar
The ‘Kiwi’ began the week in a similarly strong position as its neighbour the ‘Aussie’ but as the week continued the currency began to weaken. At first Optimism over a possible bailout of Spain and European Central Bank aid to assist struggling European nations with its bond selling has also seen investors more inclined to take risks aiding the New Zealand Dollar and other commodity currencies. The ‘Kiwi’ declined as the week wore on after the country’s policymakers tried to talk down the currency and poor data out of Europe dragged on investor confidence.
New Zealand and Australian policy makers are both trying to talk down their currencies in a bid to prevent them becoming too strong and therefore damaging the demand for their exports. At the end of the week the New Zealand Dollar had hit a three-month low against the Aussie Dollar. The fall came after the latest job figures for the country showed that the unemployment rate rose more than expected, taking many economists by surprise. The rate rose 0.1% to 6.8% whilst Australia’s jobless rate fell to 5.2%.
The Canadian Dollar began the week trading close to parity with the US Dollar. An improved outlook for Canadian exports and the high demand for crude oil its main commodity saw the Canadian currency go from strength to strength. By mid-week the ‘Loonie’ had broken through parity before hitting its strongest level for three months at the end of the week.
For more currency updates tune in to the small business news section next week.
Currency update provided by TorFX – FSA Authorised Currency Brokerage. For more information and to request a free quote, visit www.torfx.com