The Dollar declined against the Pound while making gains against the Euro yesterday. The divide came ahead of the Fed’s FOMC rate decision, while no change in interest rates was expected; investors paid particularly close attention to accompanying commentary which was viewed as positive in tone, saying that the economy was expanding moderately.

Amidst the recent string of relatively strong economic figures, with particularly encouraging improvement in the labour market and manufacturing sector, expectations of a third round of quantitative easing are quickly fading. However, unemployment remains relatively high and any hints of lingering dovish sentiment could see the dollar quickly retrace its recent gains, especially against the EUR and JPY. Meanwhile, US retail sales minus the volatile auto and gas components advanced by more than expected at +0.6%, but proved slightly lower than last month’s 1% gain. With autos and gas accounted for, sales gained by 1.1% on the sharp rise in gas prices.

The Euro declined against the Pound and the Dollar yesterday after on-going concerns that the broader region remains at risk for further economic contraction. While the immediate default risks in Greece have abated after the Eurozone finance ministers finally signed off on the nation’s second “bailout” package, the larger regional economic deficiencies persist. The ECB’s recent injection of more than EUR 1 trillion into the European banking system has eased funding pressures for nations like Italy, Spain and Portugal, but investors are said to be already pricing in which nation will force losses on its investors next.
Portugal appears to be next in line, but with Spain recently raising their budget deficit target to 5.8% from 4.4% for 2012, investors are already looking ahead to the fallout from a possible credit event in Spain and Italy, the region’s fourth and third largest economies respectively. Moreover, while the ECB kept interest rates on hold at the culmination of their meeting last week, investors don’t appear to believe that the central bank is done providing support to the region with further interest rate cuts and possible further LTRO operations expected in the coming months. The ECB’s more dovish stance has provided impetus for investors to short the EUR in the near term as it loses some of its yield appeal.

Data released 14.03.2012

UK 09.30 Claimant Count (February)
ILO unemployment (January)
UK 09.30 Avg Weekly Earnings / Ex Bonuses (Jan)
EU 10.00 Industrial Production (January)
EU 10.00 HICP Final (February)
US 12.30 Current Account (Q4)
US 12.30 Import / Export Prices (February)

Anyone looking to sell $100,000.00 into GBP @ 1.5992 would have returned £62,531.26. With current exchange rate around 1.57 that $100,000.00 would now return £63,694.26!

That’s an extra £1163.00 in your pocket!

Fluctuating markets can make a huge difference and there are ways in which OmnisFX can help to protect you from adverse market movements.

Forward Contracts

Forward contracts allow the client to agree an exchange rate for their currency and fix it for up to 24 months. Clients are asked for an agreed deposit to secure the rate. The client then has access to their funds at the fixed rate given on entry at any time. This is ideal for a variety of property transactions.

Example

Scenario

A hot tub distributor in the UK buys stock from the US to resell in the UK. The company had previously used their bank to transfer funds as and when required. As the sale price agreed with the retail outlets is fixed this left the company exposed to fluctuating exchange rates and as a result played havoc with profits and cash flow..

Solution

During the review, it was recognised that invoices were paid quarterly and as the business is well established, the transaction amounts can be predicted with a good degree of accuracy. Using this information along with the cyclical nature of the business it was decided to use a forward contract to fix the rate over the course of the year. In doing so the profit margin could be accurately predicted and cash flow properly managed.

Limit orders

If you only wish to exchange your funds at a specified rate, your account manager can monitor the market and buy the currency at the level agreed.

Stop orders

Stop orders can be used to protect against the exchange rate moving adversely. It can also be used to allow clients to lock in a worst case scenario while holding out for a better rate

The Dollar consolidated towards the lower end of its recent ranges against most of its major counterparts on Friday.
Stocks and commodities are off to a shaky start after the most recent reading of US GDP fell short of expectations at 2.8%, but was much higher than the 1.8% pace recorded in the third quarter. A disappointing holiday shopping season and government spending cuts led to the underperformance, but the data does provide some validation for the Fed’s decision to keep rates on hold for the next two to three years. Nevertheless, University of Michigan confidence registered better than expected at 75 versus 74 in the previous reading. Dovish commentary from Fed policymakers is also taking its toll as expectations grow that QE3 may be closer than previously thought.

The Euro made gains for the second week against the USD as confidence builds that a deal to extend a second bailout to Greece is at hand. EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters that Greece was “close” to reaching an agreement with its creditors, but final private sector involvement remain unclear.

The common currency’s upside potential also remains limited as investors begin to price in further monetary easing in the coming months. ECB President Draghi told reporters at the World Economic Forum in Davos, Switzerland that they don’t yet know if the Bank’s record injection of liquidity into the banking system is finding its way into the real economy. He went on to say that there is a lag, but that “we know for sure we have avoided major credit crunch and a major funding crisis.”

While the central bank’s operations may have eased improved interbank credit conditions, a report released this week showed that loans to households and companies contracted by 0.7%, the most since the records began in 1991. The ECB will offer a second round of three-year interbank loans on February 28th.

Data released 30th January 2012

EU 10.00 Economic Sentiment (January)

Industrial / Services / Construction

US 13.30 Personal Income / Consumption (December)

Core PCE

The Dollar declined against the Pound and the Euro following a pledge from the Fed to keep interest rates exceptionally low until 2014. With US assets yielding all but nothing for at least the next two to three years, investors are seeking higher returns elsewhere. Further weighing on the dollar, Fed Chairman Bernanke paved the way for a third round of large-scale bond buying should unemployment remain at or near its current 8.5% and inflationary pressures continue to ease. While global economic growth continues to fall short of expectations, US data has generally surprised to the upside, leaving investors questioning the Fed’s dovish stance.Durable goods orders fell to 3% in December, down from 4.3% in the previous month, but much better than the 2% expected. Weekly jobless claims ticked slightly higher to 377k versus last week’s 356k, but the measure remains well entrenched below the key 400K barrier. Leading indicators also fell short of expectations at 0.4%, but were higher than last month’s downwardly revised reading of 0.2%.Investors will pay particularly close attention to GDP data due today, fearing that the Fed announcement must mean that they are positioning for a shortfall the market has not anticipated. While the Fed’s lax monetary policy will weigh on the dollar in the short term, the general outperformance of the US economy will provide support in the longer term.

The Euro made gains against the Pound while remaining relatively unchanged against the Pound as European policymakers inch closer to brokering a deal to provide Greece with further financial aid. It appears that European officials understand the severity of the situation should action not be taken, and while a deal is ultimately expected, investors are remaining largely on hold until a final deal is brokered.EU Finance Minister, Jean-Claude Junker told reporters this morning that “there’s no default without contagion. It is in everyone’s interest to avoid a Greek default.” However, avoiding the spread of contagion is only half the battle as all estimates point to a mild recession in Europe in 2012. Nevertheless, the common currency is finding support this morning, albeit within its recent ranges.

Data released 27th January 2012

EU 09.00 M3 (December) 3 Month Moving Average

US 13.30 Advance GDP (Q4)US

14.55 Final Michigan Sentiment (January)

The Dollar made gains against the Pound and the Euro as declining stocks and on-going worries over Eurozone debt are outweighing a possibly dovish stance from the Fed.

Fed Chairman, Ben Bernanke said the US central bank might consider further monetary easing through bond purchases while further delaying the timing of an eventual interest rate rise until late 2014, some 18 months later than previously forecast. The dovish Fed tone could well dominate forex markets today, especially as the economic calendar is mostly second tier data.

The Euro declined against the Pound and the Dollar after the ECB made it clear that they are opposed to restructuring Greek bonds. S&P added further severity to the situation when it released a statement that a Greek default was all but a foregone conclusion, even should policymakers and the private sector broker a deal over a second bailout package. German Chancellor Merkel cast doubt over the sustainability of the current situation, telling reporters that “We haven’t overcome the crisis yet. Of course, there’s Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.” The grim outlook was further compounded yesterday when the IMF downgraded their assessment of global growth for 2012, adding that Europe will likely slip back into a mild recession.

Data released 26th January 2012

UK 11.00 CBI Distributive Trades Survey (January)

US 13.30 Durable Goods (December)

US 13.30 Initial Jobless Claims (w/e 21st January)

US 15.00 Leading Indicators (December)

US 15.00 New Home Sales (December)

The Governor of the Bank of England, Sir Mervyn King, has urged against “despair” because “all crises come to an end” as official figures were expected to show that Britain is heading back to recession.

The Dollar made gains against the Pound and was choppy against the Euro.

Volatility returned to the market with the EU finance ministers rejecting the Greek bondholders 4.0% coupon demand on a debt swap. Stocks dropped in Europe and in the US and helped the Dollar gain on safe haven demand. The dip was shallow though and most markets pared losses into the end of the session. Looking ahead, FOMC Interest Rate meeting forecast to hold at 0.25%. Focus on the FOMC Statement and Press Conference afterwards.

The Euro made gains against the Pound and the Dollar yesterday bolstered by optimism that Greece was set to cut a deal with its private sector investors on a debt swap. However, with little sign of a resolution as yet, the euro gave up some of its gains versus the dollar and other majors in early morning trade. The talks are now expected to be concluded by the end of this week. The main stumbling block at this point seems to be over what coupon creditors will receive on the planned new bonds. Some official say that Greece will pay not more than 3.5%, while creditors are pushing for more than 4%. European Union officials have stepped up pressure on Greece and its creditor banks in a complex game of three-way brinkmanship, signalling that they will allow a Greek default to run its course unless both sides accept more pain.

Data released 25th January 2012

UK 09.30 BoE Minutes of 11th – 12th MPC Meeting

UK 09.30 Prelim GDP (Q4)

UK 11.00 CBI Industrial Orders (January)

US 15.00 Pending Home Sales (December)

US 17.30 FOMC Interest Rate Announcement

US 19.15 FOMC Press Conference

This week the BoE meets, and there is speculation that they will further their asset purchase program, or quantitative easing, to cap borrowing costs. Despite this, sterling still strengthened roughly 2% versus the dollar this past week as it looks like Greece might come to the table with an acceptable offer to avoid default.

The Dollar declined against the Euro and the Pound yesterday driven by swings in risk sentiment. The tone for the week could well be set by the extent of progress in the talks on Greek debt restructuring. In the US, GDP data for Q4 are up for release. A growth rate of 3.0% is expected, up from 1.8% in Q3. Stronger consumption growth, a boost from net exports, and positive contribution from inventories will lift GDP growth.

The Fed meeting on Wednesday will be the first meeting with Fed interest rate projections, and it will be very interesting to find out when the Fed expects the first interest rate hike, and how much tightening is expected in the following years. The first hike is anticipated to come in the second half of 2013. Other releases this week will be durable goods orders and home sales and prices.

The Euro made gains against the Pound and reached its highest level against the USD in nearly three weeks on hopes that Greece and Eurozone banks could rise above their mountain of debt. Germany and France are pressing for talks between Greece and its private creditors to cut its soaring debt to sustainable levels and said they were committed to seal a new bailout arrangement for Athens by March to avert a default.

Official news sources stated that the several rounds of meetings between Greece and its private creditors are collaborating a deal which would bring a loss of 65-70% to private bondholders of Greek bonds. In addition, European stocks hit their highest close since early August, largely due to the rally in Eurozone banks after France and Germany called for a relaxation of capital required from global banks to prevent a credit crunch. Despite its recent sharp gain in stocks, European banks are facing cautious investors who fear the risks of potential debt write-offs.

Data released 24th January 2012

UK 09.30 PS Net Borrowing (December)

EU 10.00 Industrial Orders (November)

Global 15.00 IMF World Economic Outlook (January Update)

The Dollar declined against the Pound and the Euro yesterday. The Dollar index is down for a third straight day as weak housing and manufacturing data outweighed a strong labour market report, prompting investors to increase odds that the Fed may yet pursue a third round of quantitative easing.

CPI data registered in line with expectations at just +0.1% month over month, leaving the Fed room to keep monetary policy on hold for the foreseeable future. Housing starts fell to 657k and the Philly Fed Index to 7.3, but weekly jobless claims tumbled to 352k, down 50k from last week. Moreover, positive developments in Europe as struggling Eurozone member’s auction off a large load of debt without a hitch are generally encouraging risk appetite.As such, investors are taking the opportunity to book profits on the dollar’s precipitous rise over the past several weeks, but weakening global economic fundamentals continue to support the longer term trend for a strong dollar, at least for the time being.

The Euro made gains against the Pound and the Dollar as investors, short on the common currency, closed out positions after a Spanish debt auction drew more demand than needed. Nevertheless, the long term view for the EUR remains shaky at best with investors now pricing in a breakup of the Eurozone by the end of the year with a 37% probability, up from 32.5% just one week ago.

With strong data released in the US, and with stocks and commodities building on yesterday’s gains, the EUR is enjoying this brief reprieve. However, funding costs remain a cause for concern and the deadline for a second Greek bailout of March 20th is fast approaching.

Data released 20th January 2012

UK 09.30 Retail Sales (December)

US 15.00 Existing Home Sales (December)

The Dollar declined against the Euro and the Pound as strong economic data and debt auction results in the Eurozone encourage investors to assume riskier positions. While the Dollar Index is 0.53% lower this morning, it remains near the top of its recent ranges supported by resilient economic data out of the US and continued struggles in the Eurozone.

On the economic data front, the Empire Manufacturing Index came in better than expected at 13.48 and the Philadelphia Fed survey on Thursday is expected show further improvement. Inflation data is also on tap for the week ahead, and is expected to show a decline in the annual rate to 3.1% from 3.4% whereas core inflation should remain unchanged at 2.2% y/y and rise 0.1% m/m. This week also offers a batch of housing data with the NAHB housing market index and housing starts on Wednesday and Thursday respectively. Both have shown improvements in recent months, suggesting that the housing market is finally bottoming. PPI and Industrial Production will also be released later this week, with a modest improvement expected in both. While this week’s releases will help set the tone for the US economy for at least the first half of the year, the currency market will remain largely focused on the developing situation on the other side of the Atlantic.

The Euro made gains against the Pound and the Dollar yesterday receiving a respite from relentless selling pressure on positive news from the region and optimism over the global economy. The single currency rose to peaks against the Dollar after Germany reported that its ZEW economic sentiment index rose by the largest amount on record to -21.6 in January from -53.8 previously. The strong improvement in German outlook raised hopes that Europe’s largest economy is showing resilience despite the region’s challenges. Pressure on the EUR also eased after yields on Spanish and Greek debt fell following successful auctions in both nations. Recent positive news serves as a reprieve from the cloud hanging over Europe. Ratings agency S&P continued last week’s sovereign downgrades of European countries which stripped France of its top rating to AA+, by downgrading Europe’s EFSF rescue fund to AA+ yesterday which sent the euro to lows at $1.2624. With little end in sight to its challenges, pressure on the euro is likely to continue with gains such as those seen today likely proving temporary.

Data released 18th January 2012

UK 09.30 Claimant Count (December)

ILO Unemployment (November)

UK 09.30 Average Weekly Earnings (November)

Ex Bonuses

US 13.30 PPI (December)

Ex Food & Energy

US 14.00 TICS Capital Inflows (November)

US 14.15 Industrial Production (December)

Capacity Utilisation

US 15.00 NAHB House Builders’ Sentiment (January)

The Dollar made gains against the Pound while remaining unchanged against the Euro as equities and commodities rebound and expectations for global growth improves. A recent report showed that the global economy could expand by more than 4% this year, compared to a long-run average of just below 3%. While the US economy has stuttered in the first quarter of 2011, investors anticipate a rebound in the second half of the year. While this improved sentiment usually benefits higher-yielding currencies, the recent steep sell off in parallel financial markets has boosted the dollar in its role as a relatively safe investment.

The Euro made gains against the Pound while remaining relatively unchanged against the Dollar despite heightened fears of debt default in the region’s periphery economies. Recently ECB officials ruled out a Greek debt “restructuring”, butting heads with regional political leaders. ECB member Juergen Stark told reporters that, “a Greek debt restricting is not the appropriate way forward – it would create a catastrophe.” Member Bini Smaghi added that “a solution for reducing debt, but not paying for it will not work.” A “soft restructuring” in which the maturities of debt instruments are extended without changing the principal and interest rate is now being discussed, but it remains to be seen if investors would voluntarily accept the delayed payments. While a debt default is not imminent, investors are finding it difficult to justify long euro positions with such uncertainty ahead.

Data released 19.05.2011

UK 09.30 Retail Sales (April)

UK 11.00 CBI Industrial Orders (May)

US 13.30 Initial Jobless Claims (w/e 14th May)

US 15.00 Existing Home Sales (April)

US 15.00 Leading Indicators (April)

US 15.00 Philly Fed Business Survey (May)