is4profit Weekly Currency Roundup (24th August 2012)
So, what’s happened in the world of currency this week?
The Euro began the week trading strongly against a basket of currencies as optimism that Europe’s were finally starting to act to stem the Euro crisis grew.
The single-currency maintained a five-day gain against the Japanese Yen and was further boosted by reports in a German newspaper claiming that the European Central Bank will impose debt limits on Eurozone members. The Euro was also trading up against the US Dollar as risk sentiment remained relatively high and demand for the safe-haven Dollar weakened.
By Tuesday the situation had changed after the ECB quashed the newspapers report citing that speculation was dangerous for the Euro. The Euro also wasn’t helped by the German Bundesbank stepping up its opposition to an ECB plan to buy billions of Euros worth of Italian and Spanish debt.
By mid-week the losses were reversed after the ECB confirmed that it was taking action to aid Spain and Italy keep their borrowing costs down. As a result the Euro soared to a two-week high against the US Dollar. On Thursday that gain had risen to a seven-week high after PMI surveys for French manufacturing and services activity was not as bad as predicted.
The situation in Germany is not so good however, after their PMI showed that the country’s private sector has shrunk for four consecutive months and demand for its goods waned. The German result was not enough to dent the expectations over the ECB bond buying scheme and Euro leader’s firm stance over Greece raised optimism over the Eurozone leadership. By the end of the week the Euro once again saw itself in retreat as market confidence began to wane and doubts over the state of the global economy saw traders seek safe havens elsewhere.
The US Dollar began the week trading at a five-week high against the Japanese Yen thanks to a surge in US bond yields, and positive reports over the USA’s economic data. The 10-year U.S. Treasury yield rose to 1.86%, bringing its yield advantage over Japanese bonds to nearly the 1% point for the first time in three-months.
On Tuesday the US Dollar slipped against a basket of its peers as investors bought risky assets on hopes that the ECB will take action to curb the Euro debt crisis. On Wednesday the Dollar made gains following the release of better-than-expected economic data. The increasingly improving data out of the world’s most powerful economy dampened expectations that the Federal Reserve will implement a third-round of quantitative easing, but the Reserve had other ideas.
The release of the Feds latest minutes showed that they were prepared to implement the third round of monetary if the US economy doesn’t improve considerably. Traders and the markets didn’t like this at all and on Thursday the Dollar took a beating in the markets.
The ‘Greenback’ slumped to a seven-week low against the Euro, a one-week drop against the Yen and a three-month dip against the British Pound. By Friday the Dollar reversed some of those losses thanks to creeping doubts over the global economy and demand for safe haven currencies rose.
The Pound began the week trading at a six-week high against the Japanese Yen and was up against the Euro on the back of last week’s better-than-expected Economic data. Above-forecast jobs and retail sales data as-well-as an unexpected rise in inflation also made markets believe that the Bank of England is not considering further quantitative easing measures.
Against the US Dollar the Pound weakened following the release of a better-than-expected US consumer sentiment survey. The Pound continued to rise against the Euro after the ECB quashed the rumours circulating about its bond buying scheme. By mid-week the Pound was trading at a 3-month high against the US Dollar, a 7-week high against the Japanese Yen and a 2-week low against a buoyant Euro.
The revelation that the UK government borrowed more-than-expected for July caused a drag on the Pound as investors sold the currency in favour of the Euro. At the end of the week a French PMI survey showing manufacturing and services activity was not as bad as forecast briefly boosted sterling and the euro against the Dollar, although the sectors were still in contraction and the Euro zone as a whole looked destined for recession.
A combination of weak economic data out of Asia and increased risk sentiment has seen the Japanese Yen struggle this week. The country’s trade deficit rose in august to 460billion from 300billion in June. Traders are expecting the Bank of Japan to implement additional monetary support in a bid to bolster confidence in the Japanese economy. The Yen began the week at a five-week low against the US Dollar with losses expected to rise as demand for safe havens increase.
The ‘Aussie’ began the week up against all of its major counterparts ahead of the Euro debt crisis meetings between EU leaders. The Australian Dollar strengthened against the Japanese Yen and US Dollar thanks to increasing speculation that the European Central Bank is set to impose yield caps in the single-currency zone. Such a move raised risk sentiment, benefitting the ‘Aussie’ and other commodity based currencies.
The currency continued to strengthen until Wednesday when a $30billion expansion project for the country’s biggest mine was put on hold. Worries that Australia’s mining boom is over appear to be justified as China’s economy continues to weaken and demand for iron ore wanes. At the end of the week the ‘Aussie’ reached a one-month low against the New Zealand Dollar as the governor of the Reserve Bank of Australia said that the nation’s currency would fall if the mining boom collapses.
New Zealand Dollar
The ‘Kiwi’ followed the same pattern as its Australian relation until midweek when the currency rose to a two-week high against the US Dollar, extending its rallying trend on the back of the Federal Reserve’s revelation that it was still considering further quantitative easing measures. Traders ignored a weak Chinese manufacturing indicator, with the HSBC purchasing managers index preliminary reading falling to 47.8 this month from July’s 49.3. If that’s confirmed, it would be the weakest level since November, and may signal the world’s second biggest economy is in for a harder landing than expected. At the end of the week the ‘Kiwi’ dropped against the Pound as demand for riskier commodity based currencies dipped slightly.
The ‘Loonie’ began the week trading above parity with the US Dollar and held close to its strongest level for three months following a report showing strong economic growth prospects. By mid-week the Canadian Dollar weakened as risk aversion rose over doubts over the global economy. The pattern was repeated at the end of the week, with the ‘Loonie’ down against the ‘Greenback’.
This currency update is provided by TorFX – FSA Authorised Currency Brokerage. For more information and to request a free quote, visit www.torfx.com