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The USD - US Dollar weekly update 30 Jun 2008
In this week's
update: Fed statement a disappointment for the Dollar
- UK mortgage approvals slump
- US payrolls expected lower again
Sterling pottered around close to its $1.97 opening level until Wednesday evening. The last two days of the week took it two cents higher and it opened in London this morning at $1.9950.
The week's economic data were not particularly helpful to Sterling. Its saving grace was that figures from elsewhere were almost equally as lacklustre. The highlight - if a negative figure can be referred to as such - was the CBI Distributive Trades survey. After the previous week's unbelievably strong Retail Sales performance the market was ready for a burst of harsh reality from the shopkeepers. Forecasters were going for a 16 reading so when it turned out to be only 9 there was a degree of relief.
Rather less satisfactory was mortgage activity among BBA members. The Independent was perhaps exaggerating when it said "the number of mortgages approved for house purchases slumped to an all-time low." It would be a surprise if the figure had not been lower in, say, 1914 or 1939. Yet the point was well made that, compared to a year ago, fewer than half as many people are buying. According to the BBA, "only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders." Scant consolation when there are 15 sellers for every buyer.
Bank of England Governor Mervyn King was slightly less gloomy than usual during his Q&A session at the parliamentary Treasury Committee. He repeated his story about inflation rising above 4 per cent by the end of the year but was evasive about what might happen to interest rates. The media and the market were left guessing and failed to come up with any firm conclusion.
The Dollar's week was dominated by Wednesday's interest rate decision in Washington. During the three days prior to the announcement investors fretted about how the statement might be worded. The rest of their week was spent fretting about how it had been worded. The inference on most sides was that the FOMC fumbled the pass. From the Dollar's point of view the specific problem was the Fed's failure to state clearly that inflation is of greater concern than growth. The statement included plenty of hints and innuendo along those lines but the FOMC couldn't bring itself to say as much in so many words. It couldn't pull the trigger. Interest rate futures prices rose quickly. Where the September price had reflected a 1/9 likelihood of higher rates in September just a day earlier, the post-statement price widened to 2/1 against. As had been feared, the FOMC's fudge put the Dollar to flight.
The Dollar runs a further risk this week with the release on Thursday (Friday is a US holiday) of the important employment data. Non-farm payrolls will be down again; the only question is by how much. Sterling's potential pitfalls come with house price reports from the Nationwide and the Halifax. The Bank of England does not target house prices but investors are always inclined to see falling prices as a pointer against higher interest rates.
With Sterling in its best position since April buyers of the Dollar should take advantage of the opportunity to pick some up close to the magic $2 level.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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