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Monthly Currency Update - GBP/USD July 09.

Monthly Currency Update - GBP/USD July 09.

Old Jun 30th 2009, 10:49 pm
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Default Monthly Currency Update - GBP/USD July 09.

Hi All,

Here is an overview of what’s been happening in the Currency Markets throughout June with the USD.

The summer has finally taken hold down in Windsor and it looks like we could be in for some record breaking temperatures over the coming weeks! (Fingers crossed). I’m sure many of you will be jetting off to even warmer climes over the coming weeks, so all the best to those that are.

The start of June saw some green shoot data continuing to sprout from both the UK and the US, with manufacturing surveys for May showing a continued climb back towards the key 50 expansion level, although notably the UK’s reading continues to out-pace that of the US.

A 2.6% rise in the Halifax house price survey concurred with the positive result at the Nationwide, itself the second rise in the past 2 months, and although both institutions are averse to chicken counting, stability if not confidence, appears to be growing. And there was more to come with perhaps the first bud to develop, in the form of the UK CIPS/Market service sector survey which became the first of these forward looking indicators; UK,EU or US, manufacturing or service, to break back above the 50 expansion threshold since the start of the recession. The ‘half fullers’ noted that the dominance of the service sector meant the composite measure was also back above 50 and the Markit ecoMarket even suggested at this pace of recovery, Q2 may even register growth. The more circumspect ‘half empties’ pointed to the failure of this survey to predict the severity of the slowdown and therefore took less comfort from what is, after all, a bunch of opinions, albeit from the coal-face. However, it does appear to reflect a growing level of confidence and, at its crudest, that is what all the economies have been lacking.

The impact of all this good news in the UK was to help Sterling strengthen, not just against the rapidly sinking Dollar, but also against the Euro, to 1.1660. With UK cabinet ministers resigning in droves and actively calling for the PM’s head during an election week (can you ever remember that happening before?), Reuters reported that Sterling had collapsed following a rumour that Gordon Brown had resigned. The PM’s office quickly issued a denial and order, although not the rate, was restored. Thus the newspapers had their headline but as we often note, things are never that simple in the FX markets. Firstly, it’s generally true that political events rarely have a lasting impact upon the currencies. Secondly, as the markets tend to look forward, it could easily be argued that the PM’s resignation would be a positive move towards either a more effective leader or a new party in power. Thus the simple political explanation may carry some weight in the short-term but in this case there may have been another factor at play.

With Gordon Brown surviving a back-bench grilling, it was back to watching the data to see if the green shoots were thriving or withering. Early signs were good with the forward looking RICS housing survey improving to an 18 month high at -44, although this is still well short of suggesting sustained price rises. New buyer interest and estate agent sales continued to improve as did mortgage approvals fro April later in the week. The BRC retail survey for May was less bullish, declining 0.8% like-for-like on the month, but this was expected after the late Easter induced success of April. The stand out release came on Wednesday as a potential ‘bud’ was unveiled in the form of the UK actual, as opposed to survey, manufacturing results. April’s result came in at +0.2% and March was revised up to +0.1%, the first positive month since February 08. Incorporating these developments, the National Institute for Economic and Social Research (NIESR) issued a bullish report on the UK economy suggesting Q2 could see growth in GDP, an end to the recession. Whilst this must have been music to Chancellor Darling’s ears, he, in concert with many others, sounded a veritable orchestra of cautionary notes about getting too carried away with the mood of optimism. Manufacturing had, for example, been expected to recover as stocks, slashed during the height of the crisis in Q4 and Q1, were rebuilt. However, since the recession is all about a lack of confidence, the improvement of this scarce commodity engendered by the recent data may, to a degree, become self perpetuating. The test will be the impact of unemployment, if, as it is forecast, it continues to rise into the autumn.

The UK unemployment numbers, while still dire by any measure, did provide a little bit of excitement when the monthly rise in claimant count came in well below the market’s expectation - a rise of 39k compared to the anticipated 60k. All previous experience suggests unemployment will continue to rise well after the end of the official recession so no one is suggesting this week’s improvement is likely to turn into a trend. Retail Sales for May fell 0.6% against ‘market’ expectations that they would rise.

In the UK, data from the British Bankers Association sent a mixed message with the forward looking mortgage approvals figure rising from 27.7k to 31.1k but net mortgage lending for May fell from £2.5 billion to £2.3 billion, its lowest level since 2001. The CBI’s retail survey, another source of excitement in recent months failed to better the previous month’s -17 reading suggesting outright growth in retail sales in still someway off.

The dodgy moments for Sterling came first from within the establishment, as our Bank of England quantitative easing bulletin described. The hint of an extension of this policy could be interpreted as Sterling negative and the Bank’s Chief Economist answered criticisms that too many Government gilts were being bought from overseas investors by explaining this would be beneficial since it would depress the Pound. Later in the week, the OECD downgraded their forecast for the UK in 2009 from -3.7% to -4.3%, although their 2010 forecast was upgraded marginally from -0.2% to flat, and this too had the capacity to weaken Sterling.

Current Central Bank Rates:

U.S (Federal Reserve): 0.25% (Next Meeting 11th August)
UK (Bank of England): 0.50% (Next Meeting 9th July)

Highs & Lows of June:

High: 1.67416 – on the 30/06/09
Low: 1.5801 – on the 08/06/09

Difference on £200k

High: $334,832
Low: $316,020

A difference of $18,812

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.


Mark Bodega
Director - HiFX
Windsor2 is offline  

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