by Jon Beddell
Foreign Currency Market Update – GBP / USD Update
It seems that the markets are only seeing two world currencies at the moment. The US dollar versus everything else! As evidence grows that the economic recovery is faltering in the US, investors’ first reaction was to buy the US dollar as a safe haven from other economies that may be more impacted by a US slow down. Over the last few days the US data flow has got worse to the extent that investors are now selling the US dollar, and buying anything else in anticipation the Federal Reserve may need to declare further quantitative easing measures.
Fed’ chairman Ben Bernanke gives a key speech on Friday night at a meeting of top central bankers and investors will be hanging on every word for clues as to future policy.
Sterling is trading sharply unchanged against most other currencies this week as a lack of new information gives no real buying or selling impetus. All we can say in terms of recent data is that is has been “mildly comforting”. The Bank of England are keeping interest rates on hold, but clearly with an upward bias maintained by the one member who has voted for a hike for three months running. The public sector net borrowing figure was much better than expected. We “only” borrowed £3.8bn in the month compared with £6.1bn the previous year. The tax take receives a seasonal boost in July from corporation tax and VAT receipts. This did nudge the pound a little higher against the Euro but was generally seen as a minor event within an otherwise baron week.
As a fully paid up member of the anything else brigade Sterling has recovered the two cents it lost at the start of the week and is now approaching a key juncture around the 1.5619 – 1.5635 zone (based on the interbank rate). If it can capture that level we would become more optimistic of a recovery toward the recent highs around 1.60, but that still leaves some work to do. At the moment we are still in correction territory. So far that correction has seen Sterling give back around 30% of the May – August gains. Many analysts who use Fibonacci number analysis to try and predict market movements see the 38% (1.5335) as level as a key pivot; a move below indicates that this may be more than simply a healthy correction.
Related posts:
