Saturday, 9 August 2014

Pure FX Market Commentary



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  • Sterling hit a glass ceiling against the euro in July, as the Eurozone's dominant services sector flourished, and unemployment fell
  • The pound dived dived dived versus the US dollar last month, as the US economy grew swiftly, creating hundreds of thousands of new jobs
  • Sterling upped and down against the Aussie dollar in July, as Aussie unemployment spiked, yet the RBA considered hiking interest rates
  • The pound soared versus the kiwi dollar last month, as RBNZ chief Graeme Wheeler called the kiwi's strength "unjustified and unsustainable"

Sterling overview

Out of puff! Having spent the last 12 months in a dizzying rise against most currencies, sterling hit a glass ceiling in July, plateauing versus the euro, and falling sharply versus the US dollar. Why? Well, it's because the UK economy is showing signs of moderation, following its recent growth spurt. For instance, economic group NIESR reckons the UK expanded just +0.6% between May and July, the least in a year. What's more, UK manufacturing continued to expand last month, but at a far slower pace than forecast. With this in mind, the odds are falling that the Bank of England will hike interest rates this year, accounting for the pound struggling to stand tall!

Euro

Sterling plateaus! The pound floated between 1.26 and 1.27 against the euro in July, as the Eurozone showed signs of life. The euro jumped for example, as the currency bloc's services sector grew at its 2nd fastest pace since 2011, while joblessness fell -0.1%. However, the euro is unlikely to fly high! This is because Italy fell into recession in Q2, while Eurozone inflation hit just 0.4%, making deflation an even likelier possibility, and raising the odds that the European Central Bank will engage in quantitative easing!

US dollar

Look out, sterling's got a puncture! The pound deflated more than 3 cents against the US dollar last month to just 1.6835, its lowest since early June. Why so? Well, because the US economy has started to motor ahead nicely! For example, the US economy expanded +4.0% between April and June, easily compensating for the winter's -1.9% contraction. What's more, the US created more than +200,000 jobs in July for the 6 month on the trot, the 1st time that's happened since the 1990s. Hence, the resurgent greenback!

Australian dollar

Wibble wobble once more! Sterling fluctuated between 1.79 and 1.83 against the Australian dollar for the 4th month on the trot in July, as Australia's economy continued to blow hot and cold. For instance, the Aussie plunged, as Australia's unemployment rate hit +6.4% in June, the highest in a decade. Yet equally, the AU dollar also climbed, as Australian inflation hit +2.9%, which may prompt the Reserve Bank of Australia to hike interest rates. So, the Australian dollar exchange continues to bounce around!

New Zealand dollar

Up to $2.00! Sterling rocketed 4 cents versus the New Zealand dollar to 2.00 in July, its highest in 6 months. Why the jump? Well first, because Reserve Bank of New Zealand dollar governor Graeme Wheeler called the kiwi dollar's strength "unjustified and unsustainable." Second, dairy cartel Fonterra (the world's biggest) cut its payout to kiwi farmers almost 25.0% to $6.0 a kilo, shaving billions off New Zealand's economy in a single swoop. Hence, the New Zealand dollar finds itself down and out!

Canadian dollar

High one day, low the next! Sterling wobbled between 1.83 and 1.85 for the 3rd consecutive month versus the Canadian dollar in July. How come? Well, because Canada's economy can't decide if it's doing nicely or not! For instance, the loonie dollar flew, as Canada's economy expanded +0.4% in May, more than forecast. But unfortunately, all this growth came from the sole province of Alberta, where Canada's oil industry is housed. Meanwhile, unemployment jumped +0.1% in May, to 7.1%. Hence, the indecisive loonie!

South African rand

The wind falls from the pound's sails! Sterling sunk -1.2% against the rand to 18.11 in July, as South Africa's economic outlook perked up. For example, the rand jumped, as 220,000 South African metalworkers ended their recent strike. Moreover, the rand also climbed, as South Africa's Reserve Bank unexpectedly hike interest rates to 5.75%, to fight inflation that's already well above its 6.0% max target. Hence, the rand held its head high, as South Africa enjoyed a spell of good news!

Turkish lira

Sterling finds itself up against the ropes! The pound dropped -1.64% against the Turkish lira in July, to just 3.59. This is because, first, the OECD has lifted its economic outlook for Turkey in 2014 +0.5%, to 3.3% growth, boosting the lira. Second, the lira rose, as yield-hunting investors turned to Turkey as an alternative to Russia, as the Ukraine crisis heats up. Last, the lira jumped, current Prime Minister Recep Tayyip Erdogan is forecast to become president in Turkey's first presidential election in August, pointing to policy consistency. Thus, the buoyant lira!

Brazilian real

Yes, no, high, low! Sterling wobbled between 3.77 and 3.89 versus the Brazilian real in July, as Brazil's economic outlook turned bright, then cloudy. On the plus side, the real climbed, as president Dilma Rousseff lost support in opinion polls (Dilma has presided over Brazil's slowest economic growth in 2 decades.) Yet equally, the real weakened, as economists forecast that Brazil's economy would expand just +1.03% this year. Hence, the uncertain real!

I hope this helps and should you have any queries then please do not hesitate to contact me.

Kind regards, James


James Roberts
Pure FX Ltd
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