Currency report for August 15By james tweed • Aug 15th, 2011 • Category: Currency
Significant items this week:
Tues 16th Aug EU – Q2 GDP and German Q2 GDP
UK – CPI/RPI
US – Housing Starts and Industrial Production
Wed 17th Aug UK – Unemployment
Thurs 18th Aug US – Philly Fed Manufacturing, Existing home sales
Fri 19th Aug UK – Public Sector borrowing for July
Thank you for downloading the foreign exchange market report from Coracle Online and Crossbar fx for Monday August 15th.
Standard and Poor’s decision to strip the US of its ‘Triple A’ credit rating shattered confidence amongst investors last week. All major equity indices suffered from wild gyrations as safe havens were sought. Currency markets reflected this scramble to safety with the Swiss Franc benefiting more than most. The US Dollar also did well, in favour of commodity based currencies where the view is that due to the fragile global economy and ever decreasing growth prospects, these currencies will be in less demand as demand for commodities dwindles.
The FOMC announced on Thursday that they would keep interest rates low until 2013 but there is a divided committee, with 3 out of the 10 members disagreeing with this approach. This could cause a problem if additional QE is attempted as a means to keep the US economy from double dipping.
The ECB’s decision to buy Italian and Spanish Bonds to reduce the yields was almost overshadowed by the market’s reaction to the US credit rating and subsequent equity sell off. French GDP came in at zero, adding fuel the theory that the current GDP forecasts are nothing like reality and that 2012 looks as tough, if not tougher than 2011 as the possibility of another recession and another bail out becomes increasingly likely.
Rumours gripped the market that France could be downgraded and its banks needed bailing out. As rumours circled about banks being unable to finance themselves, a 2 week ban on Short selling was introduced in France, Italy, Spain and Belgium for stocks in banks and insurers. This was an attempt to halt the downward spiral of equities and all related products.
In the UK, the Pound remained steady against other major currencies. What the opening and closing figures don’t show is the volatility. The Pound hit all time highs against the Swiss Franc at 1.17, before retreating to end the week lower… All eyes are on the UK inflation and unemployment figures out this week. The Governor of the Bank Of England has said all along – we have done what we can – and it now depends on the others (the Euro, the US and China) to determine where next for our economy.
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