Currency Market Analysis

Aug 20, 2015 | Currency Market Analysis

Global Themes

Sterling is trading just 1.7 percent shy of October 2014 peaks against the US dollar before this morning’s important UK retail sales report at 09:30. Stronger-than-expected news could lift Sterling closer to 10-month highs - levels the UK currency has struggled to maintain over the past 10 months. This morning Norway reported that its economy shrank by 0.1 percent in Q2, underlining the problems facing countries and currencies with exposure to falling commodity prices and China’s worrying economic slowdown.

China’s shock move to effectively devalue its Yuan remains a risk for global currency markets before tonight’s Chinese manufacturing report. Kazakhstan yesterday became the latest emerging market victim of China’s latest economic risks, with the country forced to abandon its currency band which triggered a 20 percent FX move. Yesterday the US dollar slid after Federal Reserve minutes highlighted US inflation concerns as oil prices fall.


Sterling is trading close to its highest levels since July 01 versus the US dollar this morning ahead of UK retail sales data at 09:30 that is expected to show a rise in consumer spending. Economists predict the report will show spending rose 0.4 percent (m/m) last month compared to a disappointing -0.2 percent in June. Today’s news could follow a report earlier this week which showed higher-than-expected UK inflation which was a positive signal for the Bank of England as they consider a future rate hike. The Sterling/dollar exchange rate is now just 1.7 percent shy of October 2014 peaks - levels the UK currency has struggled to maintain over the past 10 months. 


The US dollar slid overnight and is down by 0.8 percent against a basket of currencies since Wednesday morning after minutes were released from the Federal Reserve's most recent policy meeting. The minutes stopped short of flagging any clear plans to begin raising rates next month, disappointing many traders who believed the Fed will hike US rates at its next meeting on September 16-17. Policymakers expressed concern about the low levels of inflation which is an important development given the meeting took place before the recent China-led plunge in global commodities. The minutes were released just hours after US inflation data missed expectations.


The German parliament yesterday backed the latest €86bn Greek rescue deal, opening the way for the immediate release of emergency funds to help Greece pay its national debts and refinance its banking sector. Following the Bundestag vote, the Eurogroup has agreed to release €26bn, with the positive news assisting the Euro’s advance against the US dollar to near 1-month highs. The Greek developments are timely, coming just in front of tomorrow’s important Euro Zone industry PMI surveys that are expected to show slightly weaker business activity across Europe in August. The Euro has appreciated by almost 1 percent against Sterling since Wednesday morning.

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