Currency Report
Hey ya'll it is the minister here to inform you on the currencies.
The US dollar is still under pressure from many economic factors. While trading relatively sedately, the dollar lowered slightly among the currencies. The ISM Manufacturing release left traders confused as it slipped more than expected to 50.9. Further investigation showed a decline in new orders and on the employment side. The prices paid figure has increased to 65.5, on the increasing metal and fuel prices, especially oil which traded over $65/bbl. The Federal Reserve is now in a precarious position; it must decide to lower rates and decrease pressure on business and consumers or increase rates and lower inflation. The hawkish rhetoric of the Reserve has been unheeded, and it is surmised that the rates will be held steady to gauge how monetary policy will affect the economy. However, rising prices may help persuade our fellow reservists to tighten it up a little.
The Euro continues to trade higher and has tested the 1.34 level against the US Dollar. PMI manufacturing has slid slightly from 55.6 to 55.4 in the prior month while Germany, France and Italy suffered similar declines. Even thought the index remains above expansionary levels, the high exchange rate and increasing energy costs have begun to affect demand and production. Rising inflation may persuade the ECB to raise rates to 4.00, or another 25 basis points. In light of the new French presidency elections, some candidates fear having such a strong currency and look to take steps to devalue it. This may cause pressure to stop the tightening but as far as it is, the Euro still remains a good buy.
The British pound ran contrary to the bearish manufacturing data due to interest rate hike speculation. Currently it trades above 1.97 to the US Dollar. The purchasing manager's index came with a sharper decrease to 54.4, less than the expected 55.1 and below the previous month's 55.4, indicating a slowdown. Though bearish for the economy, the increase in equity withdrawals to 14.6 billion pounds boosted sentiment that consumer spending may increase even with rising property values. Speculation followed futures contracts, which have priced 2 rate hikes within the year. The report helped in supporting a surprise rate hike ahead of this week's meeting and hightening notions of carry trades.
The Yen was mostly range traded within thirty points for most of the New York session. The Tankan business survey came back lower, showing a decline in sentiment from its 2 year high. Notions of a global slowdown negatively affecting the export sector contributed to the drop to 23 from 25. The capex however rose 2.9%, higher than the expected 1.7%. Even though it is lower that the 12.4% in the previous report, the fact that it increased means that business investment is still strong as companies continue to meet demand. This is the only factor keeping traders Yen bullish, as the investment may trickle into higher wages and cause inflation. Until this occurs, the currency remains flat heading into the London session.
The Australian dollar made out well today, having reached .8110 and trading higher during the New York session. The Canadian dollar, however, was slightly lower due to profit taking and stalled crude oil prices. Contributing to the momentum in the Australian dollar was the retail sales figure coming in at a higher than expected .9 instead of .4 as expected, making it the longest expansinon run, according to the Bureau of Statistics. The figure was supported also by home-building permits which have had their biggest monthly jump since the tail end of '03. Inflation is at 3.5% in the near term and may fuel the fire for a rate hike.
The US dollar is still under pressure from many economic factors. While trading relatively sedately, the dollar lowered slightly among the currencies. The ISM Manufacturing release left traders confused as it slipped more than expected to 50.9. Further investigation showed a decline in new orders and on the employment side. The prices paid figure has increased to 65.5, on the increasing metal and fuel prices, especially oil which traded over $65/bbl. The Federal Reserve is now in a precarious position; it must decide to lower rates and decrease pressure on business and consumers or increase rates and lower inflation. The hawkish rhetoric of the Reserve has been unheeded, and it is surmised that the rates will be held steady to gauge how monetary policy will affect the economy. However, rising prices may help persuade our fellow reservists to tighten it up a little.
The Euro continues to trade higher and has tested the 1.34 level against the US Dollar. PMI manufacturing has slid slightly from 55.6 to 55.4 in the prior month while Germany, France and Italy suffered similar declines. Even thought the index remains above expansionary levels, the high exchange rate and increasing energy costs have begun to affect demand and production. Rising inflation may persuade the ECB to raise rates to 4.00, or another 25 basis points. In light of the new French presidency elections, some candidates fear having such a strong currency and look to take steps to devalue it. This may cause pressure to stop the tightening but as far as it is, the Euro still remains a good buy.
The British pound ran contrary to the bearish manufacturing data due to interest rate hike speculation. Currently it trades above 1.97 to the US Dollar. The purchasing manager's index came with a sharper decrease to 54.4, less than the expected 55.1 and below the previous month's 55.4, indicating a slowdown. Though bearish for the economy, the increase in equity withdrawals to 14.6 billion pounds boosted sentiment that consumer spending may increase even with rising property values. Speculation followed futures contracts, which have priced 2 rate hikes within the year. The report helped in supporting a surprise rate hike ahead of this week's meeting and hightening notions of carry trades.
The Yen was mostly range traded within thirty points for most of the New York session. The Tankan business survey came back lower, showing a decline in sentiment from its 2 year high. Notions of a global slowdown negatively affecting the export sector contributed to the drop to 23 from 25. The capex however rose 2.9%, higher than the expected 1.7%. Even though it is lower that the 12.4% in the previous report, the fact that it increased means that business investment is still strong as companies continue to meet demand. This is the only factor keeping traders Yen bullish, as the investment may trickle into higher wages and cause inflation. Until this occurs, the currency remains flat heading into the London session.
The Australian dollar made out well today, having reached .8110 and trading higher during the New York session. The Canadian dollar, however, was slightly lower due to profit taking and stalled crude oil prices. Contributing to the momentum in the Australian dollar was the retail sales figure coming in at a higher than expected .9 instead of .4 as expected, making it the longest expansinon run, according to the Bureau of Statistics. The figure was supported also by home-building permits which have had their biggest monthly jump since the tail end of '03. Inflation is at 3.5% in the near term and may fuel the fire for a rate hike.
posted by Ian Bellamy at
11:48 PM
0 Comments:
Post a Comment
<< Home