is4profit Weekly Currency Roundup (14th September 2012)
It’s been another week of highs and lows in the currency markets, but which legal tender have been the winners and losers?
The Euro began the week holding near a four-month high against the US Dollar after the world’s biggest economy posted disappointing jobs figures last week. The heightened expectations that the Federal Reserve would announce another round of bond purchases, at its two-day policy meeting in mid-week supported the Euro over the next few days. This week was uncertain for the Euro with elections due to be held in the Netherlands and the outcome of a German court ruling on the legality of the European Central Bank’s bond buying plans and bailout fund.
The Euro struck a 4-month high against the US Dollar rising against its peers due to the German court allowing the ratification of the Euro-zone’s permanent bailout fund. The court however imposed conditions on the plan. The key conditions announced so far are:
- The court has rules that German liability to the ESM must not exceed €190bn without asking the Bundestag for approval
- Both Houses of German Parliament must be kept informed
At the end of the week Euro continued to soar high against its major peers, hitting a ten-week high against the Pound and four-week high against the US Dollar. The single currency is set for its longest series of gains against the Japanese Yen in over three years as demand for riskier currencies soared.
Last night’s announcement from the US Federal Reserve that it will be introducing more quantitative easing gave the currency an extended boost.
The US Dollar dropped sharply last week and the trend continued this week. The fall comes, after the release of weaker-than-expected jobs data raised expectations that the Federal Reserve would begin a new round of quantitative easing in a bid to get the country’s flagging economy back on course. The Dollar then posted losses against the Euro and Pound as the demand for riskier currencies continued to improve.
The ‘Greenback’ then slumped to a four-month low against the Euro as the currency came under broad selling pressure after the Federal Reserve announced that it will be implementing a new round of aggressive monetary stimulus.
Like the Euro, the Pound began the week hitting a four-month high against a weakened Dollar due to the ‘Greenback’ coming under heavy pressure on speculation that the US Federal Reserve would announce further quantitative easing measures this week.
The Pound broke through the all important 1.60 mark against the US Dollar after the German Constitutional Court ruled in favour of ratifying the Eurozone’s proposed rescue fund. Demand for Sterling against the Dollar was also aided as the markets expected the US Federal Reserve to announce a new round of monetary easing.
At the end of the week the Pound dropped to a 10-week low against the Euro as confidence in the Euro zone soared thanks to strong policies unveiled by the European Central Bank combining with Thursday’s announcement from the US Federal Reserve that it will implement a new round of monetary easing.
Concerns over the health of the Japanese economy have seen the currency retreat from a seven-month high against the ‘Greenback’ and has seen it make its longest series of losses against the Euro for three years.
With the nation’s rebound from last year’s tsunami-induced contraction waning, Finance Minister Jun Azumi today signalled Japan is prepared to counter gains in the yen that would further curtail exports, and is open to fiscal stimulus. Worryingly retail sales fell more than economists had been predicting and industrial production slumped unexpectedly. The surge in demand for riskier currencies also had a negative impact on the currency.
The ‘Aussie’ hit a three-week high against the US Dollar as investors warmed to the idea of the Federal Reserve initiating a new round of quantitative easing. The demand for riskier assets rose amid the speculation that China may also be close to implementing its own monetary measures in a bid to prevent a further slowdown of its economy.
The ‘Aussie’ then shot up to a four-week high against the US Dollar and made gains against a number of its peers. The upward movement came after the Federal Reserve’s decision to introduce a new round of monetary easing.
New Zealand Dollar
The ‘Kiwi’ was little changed as investors awaited the German Constitutional Court judgment on the legality of the euro-zone’s rescue fund. The ‘Kiwi’ followed its Australian cousin in an upwards move against the US Dollar ahead of the Federal Reserve’s expected move to introduce further QE. Some traders are predicting that if the measures are announced then the ‘Kiwi’ could make substantial gains against its US counterpart.
The ‘Kiwi’ then climbed to a six-month high against its American relation and rose against a basket of currencies as risk appetite surged after the Federal Reserve announcement. The rise was aided by the New Zealand Reserve Bank deciding to keep the nations official cash rate at 2.5%.
The ‘Loonie’ hit a one-year high against the US Dollar and outperformed all of its peers as investors anticipated that the Federal Reserve would announce a new round of quantitative easing. The ‘Greenback’ weakened by 22% against the Canadian Dollar.
It then hit a 13-month high against its US relation due to the speculation over whether the Federal Reserve will announce a further round of Quantitative Easing. The higher price of oil and other commodities also benefitted the currency and with the German court ruling in favour of the ESM, demand for riskier assets soared.
The currency then broke the trend in the markets by making a decline against the US Dollar before strengthening to a 13-month high against its US cousin due to the Federal Reserve’s announcement. The Canadian Dollar made further gains against 13 of its 16 most-traded counterparts as the Federal Reserve announced a new round of monetary easing. Commodity linked currencies have soared as investors raise their demand for riskier assets. The value of the nation’s biggest export of crude oil rose to its highest level since May.
This currency update is provided by TorFX – FSA Authorised Currency Brokerage. For more information and to request a free quote, visit www.torfx.com