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Daily News from Senior FX Analyst – Samuel Allen

Following on from last week when US growth figures posted below expectations and gave another hint to the markets that the slumbering giant isn’t in any real mood to wake up just yet. Figures last week showed that the trade deficit in America surged to a new high which will almost certainly have a negative effect on Q2 GDP figures.

GDP figures from Europe showed that Germany is growing at a faster pace than the U.S. but concerns that German growth isn’t enough to keep the peripheral nations heads above water has driven the EUR/USD to a month low during Japanese trade.
Last week, the single currency fell as yield spreads between government bonds issued by peripheral euro zone countries and German Bunds widened due to concerns over the cost of supporting the Irish banking sector and disappointing Greek economic data, this morning those spreads have risen to their highest level for 4 months.

Positive effects from strong German and euro zone growth figures were limited. “The problem for the euro is that growth is rather concentrated in Germany, with the periphery still struggling,” said analysts at Credit Agricole.

The pound has lost strength this morning after house price data showed that asking prices have dropped by 1.7% in August. The decrease has been put down to an oversupply of marketed properties and an undersupply of buyers for them. Right-move claims that the number of houses for sale in the UK rose by 41.3% from the year earlier and reached 29,220 a week. This pushed Sterling down a point off its overnight high against the Euro to 1.21 support. The upward trend still remains intact at this time and it remains a great time to be buying Euros.

GBP/USD has also dropped almost a point this morning back to 1.5500 Bollinger band support and it looks like we might be looking at another range bound day as no significant financial data is scheduled today.

The minutes to the Bank of England policy meeting earlier this month will be released on Wednesday and investors will be watching to see whether other policymakers joined Andrew Sentance in voting to raise interest rates. The pound fell around 2.5 percent against the dollar last week after the central bank cut its growth forecasts and predicted inflation would stay below target over the medium term. “We cannot imagine anyone joined arch-hawk Sentance in calling for a hike, but it is possible that some other members expressed their concern about the risks posed by rising inflation expectations,” said Daragh Maher, strategist at Credit Agricole.

The FTSE has risen 22.8 points after Cairn Energy’s plans to sell 51% of its Indian operations to Vedanta Resources for more than £5 billion were announced. Shares in both companies rose and helped the FTSE to capture 5298.7. This was despite a mixed session for Asia markets after a sharp slowdown in Japan’s growth added to recent figures on the US and Chinese economies that suggested the global recovery is losing momentum. Some traders said Japan’s weaker GDP data could increase incentives for Japanese authorities to take measures to curb export-sapping yen strength.

Risk aversion has also helped to weaken the high yielding currencies and sterling has risen marginally against both the Australian Dollar and New-Zealand dollar this morning. It’s a great time to be buying Egyptian pounds after another 2% rise in the GBP/EGP rate this morning. Any clients with money transfer needs should get in touch with a professional broker to be assured of the best rate of exchange for their international transfer.