Tuesday, January 25, 2011

Currency Roundup | FX Market | Fundamental Analysis | 25 January 2011

Currency Roundup | FX Market | Fundamental Analysis | 25 January 2011

USD : The dollar traded higher as risk trends turned averse following reignition of European sovereign fears, disappointing UK GDP and after US Consumer Confidence data showed a much higher than expected rise. Conference Board Consumer Confidence for January rose to 60.6 versus the 54.3 expected and last month’s 52.5. This no doubt improved the outlook for the US economy going forward. Meanwhile US House Price Index for November remained unchanged as expected. At midday GMT the dollar traded higher at 1.3634 against the euro and also higher at 1.5787 to the pound.

EUR : The euro slipped from its highs during the day, paring yesterday’s advance as sovereign debt fears intensified and risk appetite abruptly changed to aversion. Elena Salgado, Spain’s Finance Minister, attempted to appease the markets with commentary playing down Spain’s fiscal problems saying that Spanish banks only required 20bn to recapitalize but the euro continued to fall anyway. The scheduled event risk for this afternoon comprised of German Consumer Confidence which increased from 5.5 to 5.7 with a fall expected and French Consumer Spending which slowed its increase from a gain of 2.7% in November to an increase of 0.6% in December MoM and 1.5% to 0.4% YoY. However, the UK’s poor GDP reading may well have weighed due to its proximity and membership of the EU. At midday GMT the euro traded lower at 1.3634 to the dollar and higher at 0.8635 against the pound.

GBP : The pound fell sharply after the release of GDP figures which showed an unexpected fall in the size of the economy. GDP fell by -0.5% in the last quarter compared to a previous quarterly gain of 0.7% and falling well below estimates of a gain of 0.5%. YoY the fall was from 2.7% to 1.7% with a modest drop to 2.6% expected. Further data showed that the PSNCR increased - that is the Public Sector Net Cash Requirement, or the money the government has to borrow to balance the books increased from 17.4bn to 25.5bn whilst the forecast had been for a fall of about 1bn. Both Public Sector Net Borrowing and Public Sector Net Borrowing Excluding Interventions decreased however, showing that new borrowing by the government had fallen. Tomorrow the minutes of the BOE meeting will be released and they will surely be read by many for signs of the outlook for future policy particularly after the disappointing figures today. At midday GMT the pound fell to 1.5787 to the dollar and 130.00 to the yen.

JPY : The yen rose after risk trends changed and yen haven demand increased. The BOJ rate decision left rates unchanged at a range of between 0.0% and 0.1%, whilst BOJ Governor Shirakawa said that the recovery had reached a ‘pause’. Some analysts believe that the yen will slowly devalue as economic growth falters below BOJ forecasts and further easing is required to try to stimulate it, but today at midday GMT the yen rose to 82.36 against the dollar and 112.29 against the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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