Forex market report 19/03/09

  • Dollar sold of after surprise Fed move to aggressively buy Treasury’s
  • Euro hits nine week high against the dollar as risk sentiment weakens
  • Sterling rides dollar bashing wave and breaks back through $1.40
  • UK—pound hits seven week low against the euro at 1.0551
  • Norwegian Krone—is this the new safe haven currency

US Dollar: The dollar was taken to the woodshed and beaten like a dog in late trade yesterday. The actions of the FOMC caught the market somewhat by surprise. The FOMC said it would buy $300bn in longer dated Treasury’s over the next six months, along with another $850bn in mortgage-related debt, in a bid to improve credit markets and pull the US economy out of its hole. Looking at what happened, it seems quantitative easing is at present, currency negative—as it was for sterling, yen and the Swiss franc. However, an alternative expla¬nation is that with last night’s move, the Fed had finally gotten ahead of the curve and this will boost confidence of a recovery later this year, hurting the greenback with an increase in risk appetite. The dollar gave up a whop¬ping five cents against the euro bang on 18.00 last night, and is still trading at those levels. We also saw  the dollar dramatically fall against the pound, breaking back under the $1.40 barrier, to trade at $1.4230, a two and a half cent drop. With the US easing monetary conditions this aggressively, it comes to everyone’s mind that there will be a greater supply of dollars, thus, there could be more inflation risks and more dollar weakness. Data 14.00: Leading Indicators expected –0.6% from 0.4%.

Pound: Sterling can be forgiven for not knowing where to look this morning after the whirlwind moves by the Fed last night. In a tale of two halves, we saw a dramatic boost for cable, as we shot back over the $1.40 levels and then some, hitting a near two week high to trade at $1.4238. Buyers of euro’s look away now, as it was completely the opposite for the pounds moves against the single currency, with sterling giving up over two cents to trade at a seven week low of 1.0551. The pound didn’t help itself with shocking unemployment data released, showing the amount of people now not in work has moved over the 2 million mark. The number of people sign¬ing on for jobless benefits jumped at its fastest rate since 1971. Some city economists forecast that unemploy¬ment us set to spiral much higher, to about 3.3mil, levels not see even during the 1980’s recession. For now, the euro remains well supported against the pound, as it is also benefitting from the move away from dollars and into a higher yielding currency. This is keeping GBP/EUR under pressure.
Data 09.30: Public Finances & Public Sector Bet Borrowing. 11.00: CBI Industrial Trends.

Euro: Risk appetite sent the euro to its best level against the dollar since January 9th in late US trade yester¬day, and also to a seven week high against the pound. The move by the Fed to aggressively buy Treasury’s was seen as a green light for players to buy much less risk sensitive trades, selling the dollar and buying the euro. The single currency built on its gains made overnight on the back of tumbles in US interest rates and the Fed’s announcement of plans to buy up to $300bn of long term Treasury securities in the next few months. The euro has slipped some from its multi months highs against the dollar and yen in Asia this morning, as players took profits after its surge driven by stepped up US monetary easing.
Data at 10.00: E/Zone Industrial Production MoM expected –3.8% from –2.6%.

General: Sure to attract some attention today is a FT article titled Norway’s Krone: the new safe haven currency? The crux of the piece is that the Norway unit could well be the least ugly currency at present, as the Chf, Jpy and now the Usd appear to have lost their safe haven status. One banker interviewed lauded the NOK as the best currency in the world and cited stabilising oil prices, a C/A surplus and little perceived chance of a default, relatively strong Q4 growth of 1.3% y/y and the fact that Norway is not expected to experience a major downturn in 2009, nor have to resort to QE.

GBP/USD                        1.4277
GBP/EUR                        1.0591
EUR/USD                        1.3474
GBP/JPY                         136.49
GBP/AUD                        2.1028
GBP/NZD                         2.6209
GBP/ZAR                         13.82
GBP/CHF                         1.6278
GBP/CAD                        1.7753
GBP/SGD                        2.1652
GBP/THB                         50.68
GBP/HKD                        11.0665

These rates are for indication purposes only.

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One Response to “Forex market report 19/03/09”

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