If sterling was buffeted back and forth the day before, yesterday was a concerted down day. Three-and-a-half cents against the dollar in a little over 24 hours is certainly not a good performance for the UK currency. In the same period, GBPEUR fell two cents at the extremes though the choppiness was plain to see; the rate bounced up and down within a 100 pip range four times in 12 hours. The data that was released would have been considered positive in normal market conditions but it will take far more than realised sales and mortgage approvals to influence direction when stock markets are all over the place as they have been. The only data on the calendar, the UK house price index from Nationwide was released this morning, just shy of the expected 0.4% equal to last month’s rise, but expect to again be in the seat of a roller-coaster: the ride hasn’t finished yet.
As the markets dramatically started their slide at the weekend and panic took hold across markets, the dollar was sold heavily and GBPUSD shot towards the highs of the year so far, while EURUSD easily cleared the highest levels since the Swiss National Bank’s actions and the announcement of the ECB’s QE back at the start of the year. Correspondingly, with Dow Jones and S&P 500 posting their biggest daily percentage gains since November 2011, unsurprisingly the world reserve currency enjoyed a little light relief as well. Durable Goods orders were well above expectations and provided argument for the September-hike camp to claim all is well in the States, the FED can continue as planned next month. Indeed, currency strategists at Goldmans and Bank of America Merrill Lynch confirmed yesterday that, regardless of the recent goings on, they are maintaining their forecasts for EURUSD to hit parity – the BoA guys suggesting by the end of this year. One of the Fed voting participants, Dudley, however, suggested that a hike next month seemed “less compelling” than a few weeks ago. Morgan Stanley seem to be in agreement – their target for EURUSD of 1.1760, so close to being achieved at the start of the week, remains in play and they suggest that 1.20 could also be feasible.
Most majors suffered at the hands of the dollar yesterday and the euro was no exception, losing 2.5 cents throughout the trading day. German import prices this morning already fell more than expected and doing little to aid the single currencies hopes of a bounce back from yesterday’s losses. In fact, while gains had been made against the pound when all was said and done, this morning has already reversed much of that move.
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UK Pound Sterling, US Dollar and EUR single currency commentary provided by Argentex