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August 2016

Sterling stabilises on surprisingly upbeat news

Published: Monday 22 August 2016

  • Sterling stabilises on surprisingly upbeat news
  • USD stronger but oil price rise and GDP could change that
  • Greek demand and unemployment make EUR shudder

It is becoming clearer that the nonsense talked about the decline and fall of the post-Brexit-vote UK is not coming to pass. Data throughout last week showed Britain is remarkably buoyant in spite of the vote to leave the EU and in spite of the dire warnings from the ‘experts’. So the Pound has found its feet and is performing quite well, albeit near the very low end of its trading ranges. Sterling is still around 3-year lows against most currencies and near a 30-year low against the ridiculously ebullient USD. So it isn’t out of the woods but it is taking a breather. The next direction of travel is uncertain though. Is this the bottom of the fall or is there more to come? No one can answer that right now and for goodness sake, don’t ask the ‘experts’. This week is light on UK data other than mortgage lending data and the 2nd estimate of Britain’s Q2 economic growth rate. If that is anything above 2.2% as an annualised figure, GBP is ripe for a recovery. Maybe all the precious metals being brought back from Rio will help the balance of payments.
 
The US Dollar is the currency ‘de l'année’; hitting, as it has, a 30-year zenith against the Pound and staying very strong against the Euro, the Yen et al.  Weak commodities and safe haven buying by investors remain the major drivers of this strength but the generally improving state of the US economy is helping somewhat. The markets are also hankering for more news on the timing of America’s next interest rate hike and the Federal Reserve Chair; Janet Yellen may provide some insight on that when she speaks at the Jackson Hole Policy Symposium on Friday. Friday will also bring the 2nd estimate of US economic growth for Q2 but there is a feeling that may be downgraded a tad from the 1st calculations. The strength of the USD leaves it vulnerable to that kind of negative data, so be prepared.
 
The Dollar is also vulnerable to the price of oil recovering and comments from OPEC last week have caused the most impressive reduction in ‘short’ oil positions in history. In other terms, traders are reducing their bets on the oil price falling in record numbers. That ought to cause an oil price rise and that will weaken the USD because oil is traded in Dollars and a stronger asset creates room for the currency in which that asset is traded to weaken.
 
In Europe, this week’s big data comes in the form of business and consumer confidence indices as well as German economic growth data. It is unlikely any of this will have a major impact but the Euro is under a little pressure this morning after Greek unemployment figures showed the country is not out of the woods yet. Greece is also pressing again for the reparation monies they are still owed after WWII. Tension within Europe is palpable.
 
New Zealand’s big news for the week will be the trade balance data released late on Tuesday (UK time). There are concerns that this will reflect a return to deficit as imports rise. The recent RBNZ rate cut can only exacerbate that over the coming months and a strong NZD damages exports. 
 
And the GREAT British Olympics squad will be heading home today replete with 67 medals and 2nd place on the leader board ahead of China and …well everyone other than America obviously. Well done Brazil. That was a game borne out of adversity and run in the midst of a recession and, despite a few empty seats, it was impressive. And what a showcase for Rio. I suspect tourism may be the saviour of the nation’s economy. I hope it is.
 

 Joke

 
Donald Trump is elected President and, on his first night in the White House, he is visited by the ghost of George Washington. Trump says, “So what can I do to best serve the United States?”
“Never tell a lie” is the response.
Trump says, “I think it’s a bit too late for that”, and George Washington vanishes.
The next night, he is visited by the ghost of Thomas Jefferson. He asks Jefferson the same question and the response is, “Listen to the people.”
“I don’t think that would help”, says Trump and Jefferson disappears.
On night three, the ghost of Abraham Lincoln appears to Trump. “What can I do to best serve the United States?” asks Trump.
Abe thinks for a moment before saying, “Have you been to the theatre lately?”
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
CAD 13:30 Canada: Wholesale sales m/m 1.8% 0.5%
AUD 15:30 Australia: CB leading index m/m 0.1% 0.1%

FX Research by David Johnson

Daily Currency Analysis with Zeta Webber



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