is4profit Weekly Currency Roundup (26th October 2012)
At the start of the week the Euro halted its decline and crept up against the US Dollar after Spanish Prime Minister Mariano Rajoy won a regional election victory which the markets took as the Spanish people’s support for austerity.
The Euro then weakened against the Dollar and Pound after the Euro bailout fund faced yet another test. This time the European Union Court of Justice weighed into the debate over the legality of the bailout programme.
As the week progressed the currency continued to make further losses. It fell against most of its major peers due to poor economic data coming out of the region. German business confidence slumped to its lowest level since February 2010 causing investors to seek safe-havens elsewhere.
In Thursday it slumped against the Pound due to the better-than-expected GDP figure for the UK. The single currency sank by 0.53% against its British rival, falling to a two-week low.
At the start of the week the ‘Greenback’ weakened against the majority of its peers, due to the release of positive New House Sales data. This caused the markets to take a positive stance over the US currency, spurring demand for riskier assets. This week saw a lot of US data releases with the latest Unemployment Claims, Durable goods orders and Pending Home sales all due.
On Friday the Dollar advanced to a new four-month high against the Yen. The Dollar lost ground against the British Pound after the US economy posted a better-than-expected GDP figure. Over the past week the US Dollar has advanced by 0.8% making it the second best performing currency after the New Zealand Dollar.
At the beginning of the week the Pound slipped to a five-and-a-half month low against the Euro after the single currency rallied broadly after the Spanish Prime Minister achieved victory in a regional election.
The market’s attention then focused on Thursday’s UK GDP data. The Pound dropped below the all important 1.60 mark slipping to a 6-week low against the US Dollar. The slump was due to weakening demand for riskier currencies after rising Spanish bond yields and comments from the Bank of England spooked the markets. The BoE Governor Sir Mervyn King said that the Bank’s actions to aid the nation’s economy were reaching the limits of their effectiveness and warned that Britain faces a prolonged economic adjustment.
The Pound then surged upwards against the US Dollar, breaking solidly through the 1.61 mark. The UK GDP figures showed that the British economy has exited recession and grown by a full 1% in the third quarter. It then struck a two-week high against the Euro and made gains against most of its peers after the UK economy grew far more-than-predicted in the third quarter.
The Yen had a week of losses after the Bank of Japan announced its intention to weaken the currency in a bid to improve the nation’s economy. It fell to a four-month against the US Dollar at the end of the week after the Bank announced it would pump 750 billion yen into the economy.
The ‘Aussie’ started the week down against the majority of its peers ahead of the release of a report that is showed that inflation remained close at its slowest pace in 13 years. The currency remained down against the ‘Greenback’ after the Australian government said that it will reduce spending in an effort to produce a budget surplus by the end of the year.
Mid-week the ‘Aussie’ surged after China posted a better-than-expected purchasing managers index. The index rose to 49.1 in October, up from a final level of 47.9 last month. Demand for the Australian currency was also supported after data showed the nation’s consumer prices accelerated more than estimated in the third quarter, giving the Reserve Bank scope to pause next month’s plans to cut interest rates.
The losses the currency suffered are expected to be short-lived however due to the improving picture emerging out of China. Confidence is growing that Australia’s biggest trade partner is showing signs of recovery after new reports revealed that the number of exports and amount of investment increased in September.
New Zealand Dollar
The ‘Kiwi’ remained relatively stable due to the markets focus on domestic data. The ‘Kiwi’ climbed to a two-week high on Thursday due to the country’s new Reserve Bank Governor Graeme Wheeler choosing to keep the nation’s official cash rate on hold at 2.5%. Investor’s looking for signs of an easing bias were slightly disappointed that he gave no hint that rates could go lower in the near future. Demand for the ‘Kiwi’ was also bolstered by the sale of 2.5 billion worth of government bonds. Against the Japanese Yen the ‘Kiwi’ reached a six-month high due to Reserve Bank’s decision.
The ‘Kiwi’ rose to a three-week high yesterday before falling after the nation’s Reserve Bank Chairman delivered his speech ruling out further quantitative easing and explained that interest rate cuts would not lead to the substantial weakening of the currency that he desires. He kept the official cash rate at a record-low level of 2.5%.
This week the ‘Loonie’ touched its lowest level in 10-weeks against its US relation due to mounting speculation that the Bank of Canada will put less emphasis on raising interest rates. The Central Bank’s governor already warned that Monday’s economic forecast would reflect a slowdown in the world’s economy. The currency also suffered due to a weakening in its key export of crude oil. The commodity fell by 2.1% its lowest level in more than two weeks.
The ‘Loonie’ remains trading just above parity against its US counterpart due to the currency sliding by almost half a penny and surrendering its gains. The Canadian Dollar then halted its slide after market sentiment improved on the back of the UK’s better-than-expected GDP data. Higher Oil prices and improved US equities could contribute to the currency strengthening.
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