United States Dollar: The dollar strengthened against a basket of currencies on open this morning on the back of a turnaround in risk sentiment. Reports out over the weekend pertaining to discussions at the G20 meeting in Korea and from the ongoing Irish debt saga have heightened fears of further global uncertainty. Analysts have commented that the recent round of talks failed to bring about significant change to coordinated global policy, once again defeating the object of a meeting designed to reach agreement. Policy makers released a statement at the end of the two day meeting stating that they (G20 members) would refrain from competitive devaluation of currencies. Economists rightly note that the issue isn’t competitive devaluation, rather it is competitive undervaluation that needs to be addressed (because of actions like quantitative easing). With this is mind the G20 failed to tackle pertinent issues. GBP/USD pushed as high as 1.6180 towards the end of last week, most likely on positive consumer sentiment data published from the US which drove risk sentiment higher. Since market open in Asian hours the pair has fallen to levels back below 1.6100 and we open at 1.6060 this morning. We have retail sales figures out of the US this afternoon followed by manufacturing data which may provide short term volatility.
– We expect a range today in the GBP/USD rate of 1.5960 to 1.6160
Euro: Eurozone worries are very much front page news again, with renewed fears of an EU sovereign default. There has been intense speculation over the weekend that Ireland will soon need to draw funds from the Financial Stability Fund (FSF), which was set up by the EU and IMF in order to bring calm to sovereign debt markets by offering support to struggling EU members. Irish Finance Minister Brian Lenihan has been on the wires stating that Ireland has not requested any assistance from the EU’s emergency fund, but there are rumours circulating that Ireland are essentially been asked by the EU to take assistance so that other periphery EU economies don’t suffer widened bond yields which increase the cost of funding. The ruling Fianna Fail party hopes that an upcoming budgetary review (on Dec 7th) will placate markets and keep down the cost of funding. Although Ireland does not need to issue debt until mid-2011, ministers are keen to bring the cost of borrowing down to levels which would not spark a continued sell off in government bonds. EUR/USD managed to rally to levels just short of 1.3780 towards the end of last week, on the back of a short term risk improvement, but this morning we open lower at 1.3630 levels. Many investors will be watching for updates from the EU and Ireland as to the possibility of a bailout. We have trade balance figures out this morning from the EU.
– We expect a range today in the GBP/EUR rate of 1.1700 to 1.1850
Aussie and Kiwi Dollars: Global risk sentiment continues to weigh on the Aussie, which fell by 3.5% last week from 1.0175 levels down to a low of 0.9820 where we open this morning. Talk of further Chinese monetary policy tightening also drove the S&P ASX200 lower, further dampening demand for the high yielder. Going forward analysts will look to RBA monetary policy minutes out tomorrow morning for further clues as to the path of interest rates in Australia. Interest rate futures imply that rates are likely to stay on hold until at least early 2011 (March futures are currently trading at 95.155, implying a 38% chance of a 25bp hike by Q1 2011). The Kiwi also suffered as a result of global economic uncertainty, and investors shifted positions to “safer” currencies such as the dollar, yen and swiss franc. Having finished the week at levels just shy of 0.7800 the Kiwi fell further this morning to levels below 0.7700. Despite positive September retail sales figures, which came in at 1.6% versus an expected rise of only 1.1%, NZD/USD continues to remain under pressure, and will likely be driven by global risk sentiment rather than local economic data.
– We expect a range today in the GBP/AUD rate of 1.6230 to 1.6450
– We expect a range today in the GBP/NZD rate of 2.0750 to 2.0950
Data Releases:
- AUD: RBA Monetary Policy Meeting Minutes
- EUR: Trade Balance Figures
- GBP: No data of note
- NZD: No data of note
- USD: Retail Sales / Empire State Manufacturing Index
