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Weekly currency update

From Analysis Mar 12 2012 BY: Moneycorp

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This is the first weekly currency report International Adviser will be publishing, courtesy of Moneycorp. The report will provide readers with an overview of significant currency events, and their impact, over the past week.

Sterling

It’s been a fairly quiet week for sterling, with little in the way of major release or market moving news. The MPC meeting passed without any further changes to interest rates or QE while the Greeks just barely averted the latest crisis.

Next week’s UK focus will be on the latest jobs data on Wednesday, with the latest trade balance the only other figure of note. With so little on the domestic plate, it will require developments elsewhere to drive the pound out of its current ranges against the euro and dollar, with the markets waiting to see what is in George Osborne’s budget on the 21st.

US dollar

The dollar gained strongly following better than expected jobs data as the risk of more quantitative easing faded. Risk aversion through the week in advance of the Greek debt deadline had earlier maintained demand for the greenback.

While the markets remain nervous about the outlook in Europe, the dollar is likely to remain strong; however, the reduction in implied volatility across the major currencies and the improving economic statistics from the US and elsewhere should see risk appetite pick up again in due course. Until that happens, support on GBP/USD at $1.5665 is likely to be tested in the near term with $1.5522 below that – however, we expect the rate to return to $1.5800+ relatively quickly.

Euro

Euro sterling remains very quiet and range bound with little to move it out of its current torpor. Risk seems to have reduced significantly, and the Greek situation is quiet for now, so we could have a period of getting back to economics, rather than politics.

GBP/EUR should remain relatively quiet in the week ahead. Risk in Europe has eased and this should be euro positive. Investors should start to concentrate on economics again and with the German economy still grinding on, we feel a stronger euro could be seen later in the week. We therefore look for €1.1850 at some stage against the pound, with EUR/USD moving higher towards $1.3350.

Australian dollar

The Aussie dollar has gained versus the pound over the last few days on the back of relief that Greece has dodged another bullet, although gains were limited by soft domestic data.

There is a range of secondary data slated for release next week, none of which should directly affect the currency markets. As a result, risk appetite will continue to drive the GBP/AUD rate. On balance we expect this to remain in the range from A$1.4990 down to A$1.4685 but a move higher is starting to look the more likely direction when the break-out comes.

South African rand

The rand firmed on Friday after the decent US Non Farm Payroll figures and the successful close of the bond swap offer between Greece and its private investors. Risk aversion seems to have eased as the week draws to a close and further advances may be seen in the days to come.

The Non Farm Payroll figures pushed sterling /rand down to levels last seen in Oct 11. Technically the downtrend is still intact drawing a trend line off of the highs of December above R13.25. We feel there is further mileage in this move down and look for further Rand strength versus sterling in the week ahead. R11.64 is the next support level in advance of R11.24.

For more currency information and the latest currency performance data please visit the International Adviser Currency Zone powered by Moneycorp.

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