Foreign Exchange Outlook

FX061 Foreign Exchange Outlook Podcast - 9th November

dan.pryor@torfx.com (TorFX) — Mon, 09 Nov 2009 04:12:24 PST

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The foreign exchange outlook podcast from TorFX. Bringing you up to the minute currency market news.

Today:

The Dollar declines against the majors.
The Pound's resolve will be tested again this week, as the focus switches to the Bank of England's quarterly inflation report on Wednesday.

You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.

Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.

FX060 Foreign Exchange Daily Insight - The Dollar declines against the majors, after U.S unemployment soars

dan.pryor@torfx.com (TorFX) — Mon, 09 Nov 2009 01:09:31 PST

GBPEUR/GBPUSD

Following on from last week, the Pound rallied against the Dollar and the Euro on Thursday, after the Bank of England raised its bond-purchasing program by just £25 billion, less than economists had predicted and for the third time since March. Policy makers are trying to cement the economic recovery, with the UK economy still languishing in the worst recession ever recorded.

The nine-member monetary policy committee, led by the governor Mervyn King, took the decision to raise the amount of bonds it will purchase with newly created money to an unprecedented £200 billion. That represents a smaller amount than many economists had anticipated and the Pound subsequently rallied against 12 of the 16 most actively traded currencies.

The Bank of England slowed the pace of bond purchases, amid signs that an economic recovery is gathering pace, giving policy makers the scope to wind down their money printing program next year. Policy makers are weighing up signs that the economy is shaking off the slump against risks the flow of credit isn't strong enough to underpin a revival.

In the accompanying statement, the Central Bank said that "on balance, the committee believes that the prospect for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists. That will continue to bear down on inflation for some time to come."

The Bank of England also maintained the benchmark interest rate at a record low of 0.5%, while the European Central Bank meet at 12:45 and will also leave borrowing costs on hold at 1%. The Pound may struggle to hold on its recent gains made against the Euro, if the ECB chairman Trichet gives any indication that Europe are preparing to exit emergency stimulus measures.

The government last week pledged more money to help two of the UK's biggest banks in Lloyds Plc and RBS Plc, boosting the scale of the world's most expensive bailout less than seven months before the general election. Colin Ellis, an economist at Daiwa Securities SMC Europe Ltd, said that the size of the increase "is an indication that they're close to finishing. There's a good chance they could hold fire in February. Clearly they won't do anything until then."

The Pound rallied 0.7% against the Dollar in the minutes that followed the announcement, touching a high of $1.6630 in London. The UK currency also bolted towards 1.1200 versus the Euro, prior to the ECB interest rate announcement and accompanying press conference. The decision was based on revised forecasts, which Mervyn King will present on November 11th, when the Central Bank publishes its quarterly inflation report.

The Chancellor of the Exchequer Alistair Darling granted the BoE the authority to expand the bond-purchasing program and said in a letter to the governor that the plan had provided a "welcome improvement" in corporate credit markets. Although the UK economy still languishes in a technical recession, he said that it is more likely that inflation will hit the 2% target.

The decision to expand the quantitative easing program followed a report on October 23rd that showed the UK economy unexpectedly contracted 0.4% in the third quarter. That extended the slump to six consecutive quarters, the most since records began in 1955, while the U.S, Germany, France and Japan all returned to growth.

The UK's struggle to return to growth has prompted some suggestions that the bond purchases are not having the desired effect. While services, manufacturing and house prices are showing encouraging signs of recovery, a gauge of money supply favoured by the bank fell 1.7% in the third quarter and unemployment increased to the highest level in 12-years.

James Knightly, an economist at ING Financial Markets in London, said that "rising confidence, combined with sterling weakness, appears to be supporting the recovery. This sets us up nicely for a positive fourth quarter." Sterling may continue to make gains versus the U.S Dollar, after UK stocks rose for a second day and risk appetite improved.

Mike Jones, a currency strategist at Bank of New Zealand Ltd, said that "the BoE is sounding a little more upbeat on economic prospects and has increased its quantitative easing program by less than expected. As a result, the Pound is finding strength." The Pound is currently trading at the highest level since October 23rd against the Dollar, gaining 1% on the week.

The Pound has risen for a second consecutive week against the U.S Dollar, touching a high of $1.6634 on Friday, after UK producer prices rose for an eighth straight month in October. Oil and import costs rose, while manufacturers sought to defend profit margins damaged in the longest recession on record. The report shows that factories have the scope to raise prices, as the recession shows signs of ending.

The Pound's resolve will be tested again this week, as the focus switches to the Bank of England's quarterly inflation report on Wednesday. As well as up to date growth and inflation predictions, the report should provide a further insight into the terms of the Central Bank's decision to increase the bond purchasing program by a further £25 billion.

EUR/USD

The Dollar slumped to a near one-week low against the Euro on Thursday, amid speculation that the Federal Reserve will trail other major Central Banks in ending economic stimulus measures. In addition, the monthly U.S employment report showed that the jobless rate soared to a 26-year high of 10.2% in October, as employers cut more jobs than forecast.

Non Farm Payrolls fell by 190,000 last month, compared with a 175,000 drop anticipated, underscoring why the Federal Reserve policy makers say that interest rates will remain near zero over an extended period. Stocks subsequently fell as the Standard & Poor's 500 index slumped 0.4% but the Dollar failed to find any momentum, amid speculation that a weakening labour market will delay a rise in borrowing costs.

The European Central Bank elected to keep interest rates unchanged at a record of 1% last week, while the Euro found some support against the majors in the accompanying press conference. The chairman Jean-Claude Trichet said that officials will withdraw some of the emergency stimulus measures introduced to fight the worst recession since the Second World War.

At the press conference in Frankfurt, Trichet said that "not all our liquidity measures will be needed to the same extent as in the past" as the economy recovers. Central Banks around the world are beginning to wind down some of the measures introduced to stave off a second Great Depression and the Euro rallied as much as 0.4% against the Dollar after the statement.

Data Released 9th November

EU 09:30 Sentix Investor Confidence Index (November)

GER 11:00 Industrial Production (September)

written by Adam Solomon

FX059 Foreign Exchange Daily Insight - The Pound rallies after the BoE extend bond purchases

dan.pryor@torfx.com (TorFX) — Fri, 06 Nov 2009 01:34:03 PST

GBPEUR/GBPUSD

The Pound rallied against the Dollar and the Euro yesterday, after the Bank of England raised its bond-purchasing program by just £25 billion, less than economists had predicted and for the third time since March. Policy makers are trying to cement the economic recovery, with the UK economy still languishing in the worst recession ever recorded.

The nine-member monetary policy committee, led by the governor Mervyn King, took the decision to raise the amount of bonds it will purchase with newly created money to an unprecedented £200 billion. That represents a smaller amount than many economists had anticipated and the Pound subsequently rallied against 12 of the 16 most actively traded currencies.

The Bank of England slowed the pace of bond purchases, amid signs that an economic recovery is gathering pace, giving policy makers the scope to wind down their money printing program next year. Policy makers are weighing up signs that the economy is shaking off the slump against risks the flow of credit isn't strong enough to underpin a revival.

In the accompanying statement, the Central Bank said that "on balance, the committee believes that the prospect for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists. That will continue to bear down on inflation for some time to come."

The Bank of England also maintained the benchmark interest rate at a record low of 0.5%, while the European Central Bank meet at 12:45 and will also leave borrowing costs on hold at 1%. The Pound may struggle to hold on its recent gains made against the Euro if the ECB chairman Trichet gives any indication that Europe are preparing to exit emergency stimulus measures.

The government this week pledged more money to help two of the UK's biggest banks in Lloyds Plc and RBS Plc, boosting the scale of the world's most expensive bailout less than seven months before the general election. Colin Ellis, an economist at Daiwa Securities SMC Europe Ltd, said that size of the increase "is an indication that they're close to finishing. There's a good chance they could hold fire in February. Clearly they won't do anything until then."

The Pound rallied 0.7% against the Dollar in the minutes that followed the announcement, touching a high of $1.6630 in London. The UK currency also bolted towards 1.1200 versus the Euro, prior to the ECB interest rate announcement and accompanying press conference. Yesterday's decision was based on revised forecasts, which Mervyn King will present on November 11th, when the Central Bank publishes its quarterly inflation report.

The Chancellor of the Exchequer Alistair Darling granted the BoE the authority to expand the bond-purchasing program and said in a letter to the governor that the plan had provided a "welcome improvement" in corporate credit markets. Although the UK economy still languishes in a technical recession, he said that it is more likely that inflation will hit the 2% target.

The decision to expand the quantitative easing program followed a report on October 23rd that showed the UK economy unexpectedly contracted 0.4% in the third quarter. That extended the slump to six consecutive quarters, the most since records began in 1955, while the U.S, Germany, France and Japan all returned to growth.

The UK's struggle to return to growth has prompted some suggestions that the bond purchases are not having the desired effect. While services, manufacturing and house prices are showing encouraging signs of recovery, a gauge of money supply favoured by the bank fell 1.7% in the third quarter and unemployment increased to the highest level in 12-years.

Elsewhere yesterday, the Pound also received a boost as a report from the Office of National Statistics showed that UK manufacturing rebounded by more than initial estimates in September, from the lowest level since 1992. Factory output increased 1.7%, the biggest gain in seven years, a sign that the economy is starting to emerge from the recession.

James Knightly, an economist at ING Financial Markets in London, said that "rising confidence, combined with sterling weakness, appears to be supporting the recovery. This sets us up nicely for a positive fourth quarter." Sterling may continue to make gains versus the U.S Dollar, after UK stocks rose for a second day and risk appetite improved.

EUR/USD

The Dollar slumped to a near one-week low against the Euro yesterday, amid speculation that the Federal Reserve will trail other major Central Banks in ending economic stimulus measures. In addition, the monthly U.S employment report is released tomorrow and may show a modest improvement in payrolls, after jobless claims decreased more than forecast.

The European Central Bank elected to keep interest rates unchanged at a record of 1% yesterday, while the Euro found some support against the majors in the accompanying press conference. The chairman Jean-Claude Trichet said that officials will withdraw some of the emergency stimulus measures introduced to fight the worst recession since the Second World War.

At the press conference in Frankfurt, Trichet said that "not all our liquidity measures will be needed to the same extent as in the past" as the economy recovers. Central Banks around the world are beginning to wind down some of the measures introduced to stave off a second Great Depression and the Euro rallied as much as 0.4% against the Dollar after the statement.

Data Released 6th November

U.K 09:30 Producer Price Index (October) - Output

GER 11:00 Industrial Orders (September)

U.S 13:30 Non-Farm Payrolls (October) - Average Earnings - Unemployment

U.S 15:00 Wholesale Inventories (September)

U.S 20:00 Consumer Credit (September)

written by Adam Solomon

FX058 NEWS FLASH - BoE extend bond purchases!!!

dan.pryor@torfx.com (TorFX) — Thu, 05 Nov 2009 06:09:43 PST

GBPEUR/GBPUSD

The Pound received an unexpected boost at midday today, as the Bank of England raised its bond-purchasing program by just £25 billion, the third increase since March. Policy makers are trying to cement the economic recovery, witht he UK economy still languishing in the worst recession on record.

The nine-member monetary policy committee, led by the governor Mervyn King, took the decision to raise the amount of bonds it will purchase with newly created money to an unprecedented £200 billion. That represents a smaller amount than many economists had anticipated and the Pound subsequently rallied against all 16 of the most actively traded currencies.

In the accompanying statement, the Central Bank said that "on balance, the committee believes that the prospect for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists. That will continue to bear down on inflation for some time to come."

The Bank of England also maintained the benchmark interest rate at a record low of 0.5%, while the European Central Bank meet at 12:45 and will also leave borrowing costs on hold at 1%. The Pound may struggle to hold on its recent gains made against the Euro, if the ECB chairman Trichet gives any indication that Europe are preparing to exit emergency stimulus measures.

written by Adam Solomon

FX057 Segregated Accounts Explained

dan.pryor@torfx.com (TorFX) — Thu, 05 Nov 2009 03:54:28 PST

Segregated Accounts

For most people using an independent foreign exchange broker to move money from one currency to another, security of funds is a major consideration when selecting which broker to use. Over the last few years an army of "currency specialists" have joined the market, usually offering better exchange rates that the banks. However, with that reward comes extra risk. Recent press comment has highlighted widespread confusion over the status of segregated accounts, and when client money is and is not protected. In this article TorFX, a leading UK currency broker (www.torfx.com) explains how the process works and what you should be asking before opening an account.

Segregation:

Most brokers use segregated accounts. A "segregated" account is an account that has been designated by the bank as being a separate client account. Clients place funds in a client account prior to making a foreign exchange trade. Money will also be held in the segregated account once the currency exchange is complete and the funds are ready to send back to the client or their specified beneficiary. If a broker gets into financial difficulty and ceases trading, any money held in segregated accounts should be protected and ring fenced from any trade creditors. More important than the account designation however, is how the accounts have been run, and whether the client monies are properly reconciled and therefore separately identifiable from company funds and also individually. Does your broker reconcile client funds daily?

Regulation:

HMRC have been the regulator for the Money Transmission and Bureau de Change markets for some years. However, the regulation is entirely concerned with anti money laundering and not with client money protection. The FSA are now stepping in to regulate general "conduct of business" matters, adding a new layer of scrutiny to both companies and owners/directors. All new companies have the obligation to be FSA authorised by November 1st 2009, but some more established companies who have been trading for longer benefit from a transition period and only need to seek authorisation for April 2011. The benefits of FSA authorisation mainly focus around the "fit and proper" tests conducted on directors and owners of these companies. The "conduct of business" rules apply to all money transmitters from November 1st whether they qualify for the transitional period or not. That means that from November 1st, customers are able to take complaints to the Financial Ombudsman Service whether the company is regulated or not.

When is Client Money not Client Money?

Whether or not the broker is FSA regulated, clients need to be clear about when their money is protected and when it is not. For example, the FSA client money rules only cover "designated investment business", and specifically do not cover the settlement of spot of forward foreign exchange transactions, which are not regulated activities. That means that when your broker is paying their counterparty (a bank or another broker) for your currency, your money won't be segregated during this process. Technically, the customer is therefore exposed to the counterparty. It also means that while customers have access to the Ombudsman Service under the new rules, they are not covered by the Financial Services Compensation Scheme for the foreign exchange aspect of their transaction. Who will your broker be using as their counterparty when settling your trade?

Jon Beddell, managing director of TorFX says, "we welcome the FSA's involvement in the industry, because being authorised means that the owners and directors of these business have been vetted. However, brokers need to be careful when communicating their client money arrangements to customers. Brokers like TorFX have always maintained segregated client accounts, reconciled daily to ensure that customer money is clearly identifiable. The FSA require that brokers "safeguard" funds, but crucially the client money rules do not cover the settlement process, whether you are FSA regulated or not. As long as your broker is holding money in segregated accounts, and operating those accounts properly, there should not be any problems. This is the same process solicitors use to hold their clients money." Ask your broker for confirmation from their bankers that the account you are sending money to is segregated.

Financial Stability:

With brokers completing to capture market share, customers find it difficult to establish which companies can offer them the security they need. There can be no guarantees, FSA regulated or not, but by asking the right questions, consumers can at least be clear about how their broker operates, and the level of risk they are taking. It is always worth checking the financial strength of the company, and they should always be happy to send you a copy of their latest accounts. Check that they have significant "shareholders funds", and that the accounts are audited.

For More information call 0800 612 9625

FX056 Foreign Exchange Outlook Podcast - 5th November

dan.pryor@torfx.com (TorFX) — Thu, 05 Nov 2009 03:15:56 PST

Player not working? Click here.

The foreign exchange outlook podcast from TorFX. Bringing you up to the minute currency market news.

Today:

All eyes on the BoE Rate Announcement today.
The Pound has rallied strongly over the past week.

FX055 Foreign Exchange Daily Insight - The Pound rallies in anticipation the BoE will exit emergency measures

dan.pryor@torfx.com (TorFX) — Thu, 05 Nov 2009 03:33:36 PST

GBPEUR/GBPUSD

The Pound rallied strongly against the U.S Dollar yesterday, rising above $1.65 in London, amid speculation that the Federal Reserve will signal its benchmark interest rate will remain on hold at record low levels for an extended period. The UK currency also touched 1.12 versus the Euro, as gains in stocks and growth in service industries showed that the economic recovery is gathering pace, prior to today's Bank of England rate announcement.

The benchmark FTSE 100 index increased 0.7% to 5,074.04 in London, rebounding from a one-month low, led by a rally in retailers. Marks & Spencer Group Plc posted better-than-expected earnings and Next Plc raised its year-end projections. The FTSE 100, which last week capped its worst weekly decline since an eight month rally began on March, has still surged over 44% since the low on March 3rd.

A report yesterday from the Nationwide Building Society also showed that UK consumer confidence remained at an 18 month high in October, as house prices recovered. Elsewhere, an index of UK service industries rose in October to the highest level since the financial crisis began in August 2007, as a gauge based on a survey of 700 companies, rose to a reading of 56.9.

The report adds to recent evidence that the country's worst recession since the end of the Second World War may be coming to an end. Policy makers will probably seek to cement the recovery this lunchtime, by increasing the bond purchase program beyond the current £175 billion, with speculation surrounding the size of the increase.

Vicky Redwood, an economist at Capital Economics Ltd, said yesterday that "the economy should now have pulled out of recession. But a quick return to rapid rates of growth still looks unlikely and we still think that the Monetary Policy Committee will err on the side of caution." Despite speculation over an extended period of quantitative easing, the Pound has continued to make gains against the majors.

Yesterday's report from the Chartered Institute of Purchasing Supply showed the sixth month of expansion in UK service industries. David Noble, chief executive offers at CIPS, said in a statement that "the service sector is pulling the UK economy out of recession as its own recovery accelerates. Given that the PMI services survey accounts for almost 40% of the the UK economy, this bodes well for the wider market pick-up."

A median number of economists believe that the Bank of England will extend the quantitative easing program by another £50 billion to £225 billion in the monthly announcement tomorrow. The last time that the MPC elected to increase bond purchases, the Pound subsequently lost 6% in value against the Euro.

The improving sentiment towards the Pound is due to speculation that rising stocks and an improving economy will make it less likely for the Bank of England to extend its asset-purchase plan this lunchtime. Pacific Investment Management Co said that the Central Bank may suspend purchases of government bonds because it has succeeded in stabilising the economy, despite the fact that the latest GDP numbers confirmed that the UK remain entrenched in the worst slump on record.

The Pound rose 0.9% against the Dollar yesterday but that momentum will be severely tested throughout the course of the day. Policy makers will debate the relative success of the quantitative easing program, with some members disagreeing on the benefits of implementing further stimulus measures.

The Deputy Governor Charles Bean said on October 13th that rising asset prices suggest the plan had a significant effect and signaled optimism that the economy had troughed. Since Bean's statement the Pound has fluctuated between gains and losses, after the Office of National Statistics reported on October 23rd that the UK economy unexpectedly contracted in the third quarter.

The Pound has rallied strongly over the past week, amid speculation that the Central Bank will begin raising interest rates at the end of 2009 and by more than 170 basis points over the next year. Euro and Dollar buyers can take full advantage of the current market rate prior to the midday announcement or at least consider the use of a stop order in case of an adverse reaction.

EUR/USD

The Dollar plunged from a near one-month high versus the Euro, as rising stock markets diminished demand for lowering yielding assets, before the Federal Reserve rate announcement on Wednesday evening. Sverre Holbek, an analyst at Danske Bank A/S, said that "a weaker Dollar trend starts to re-emerge after the temporary setback in risk sentiment over the past few days. The Fed won't change its statement drastically, which is going to further fuel risk taking."

The U.S currency weakened 0.7% against the Euro to $1.4829 in New York and may decline towards $1.55 over the next quarter. A report from the Institute for Supply Management, U.S service industries grew in October at a slower pace than expected, while the ADP employment report estimated that another 203,000 jobs were lost last month.

Mounting unemployment may mean that consumer spending will only accelerate with government assistance, indicating that the emerging recovery may lose momentum, as the Fed moves back towards conventional policy techniques. The lack of jobs makes it increasingly likely for the Fed to keep interest rates at near zero for an extend period.

As expected, the Federal Reserve left the Fed funds rate on hold in a range between zero and 0.5%, following the FOMC rate annouincement last night. The Fed maintained that the economy was improving while the declines in employment and business investment had slowed. Critically, the Fed maintained the commitment to maintain interest rates at ultra low levels for an extended period.

The Euro also received a boost after an index of European services and manufacturing industries expanded for a third straight month in October, amid evidence that the global economy is pulling out of the recession. Europe's economy returned to growth in the third quarter, after record low rates and emergency stimulus measures helped combat the steepest slump since the Second World War.

The European Central Bank also meets this lunchtime and will probably keep interest rates unchanged at 1%. The focus of attention will again fall on the accompanying press conference and Trichet is struggling to keep a lid of fellow policy makers flouting suggestions that the Central Bank is preparing to exit emergency stimulus measures.

Data Released 5th November

U.K 09:30 - Industrial Production (September) - Manufacturing Production

U.K 12:00 - BoE Rate Announcement

U.K 15:00 - NIESR GDP Estimate (3 Months to October)

EU 10:00 - Retail Sales (September)

EU 12:45 - ECB Rate Announcement

EU 13:30 - ECB Press Conference

U.S 13:30 - Initial Jobless Claims (w/e 31st October)

written by Adam Solomon

FX054 TorFX - Foreign Exchange Rand Update

dan.pryor@torfx.com (TorFX) — Wed, 04 Nov 2009 02:41:24 PST

Market Update - GBP ZAR

The Rand has weakened dramatically over the last two weeks as a stock market correction sends investors scurrying for the relative safety of the dollar and pound. The Rand leads the "high yielders" currency bracket as it offers an interest rate of 7%, making it a favourite of the so called carry trade. Investors borrow money in low interest currencies like the dollar and yen, and convert it into Rand to benefit from that yield. It's an attractive trade while the Rand is strengthening because there's capital appreciation as well as the interest rate benefit. But when markets start to wobble traders tend to exit these trades, sending the high yielding currency sharply lower. That's what happened to the Rand in October. The currency is gaining traction this week though as gold soars to new all time highs above $1,090. The dramatic nature of Monday's price spike leads us to believe that we may have seen the top for now, so buyers of the Rand should strongly consider covering any requirement now in case the exchange rate continues to slide. We are still trading over 10% higher than mid October levels.

Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.

written by Jon Beddell

FX053 The Pound rallies against the Euro, despite reports that HSBC will eliminate jobs

dan.pryor@torfx.com (TorFX) — Wed, 04 Nov 2009 02:53:43 PST

GBPEUR/GBPUSD

The Pound continued to decline against the U.S Dollar yesterday, falling to a low of $1.6264 in London, after the Royal Bank of Scotland Group Plc said that it will sell assets and need additional government stimulus. Sterling subsequently weakened for a third day against the Dollar, amid speculation that financial institutions have yet to recover from the economic crisis.

Royal Bank of Scotland Plc and Lloyds Banking Group Plc will receive £31.3 billion in a second government bailout from the UK taxpayer, as the two banks agreed to cap bonuses. The Treasury will inject £25.5 billion of capital into RBS, for a total of £45.5 billion, making it the most expensive bailout of any bank worldwide.

The government will also fund about a quarter of Lloyds's £21 billion fundraising and both banks said that they won't may cash bonuses to workers earning more than £39,000 this year. The second bailout since the beginning of the financial crisis will bring the government closer towards full ownership over RBS, while Lloyds will escape government control.

Daniel Gabay, director of Fathom Consulting in London, said that "there is now a very fine line between RBS being nationalised. This contrasts with Lloyds willing to fight harder for its independence." Share prices fell as much as 12% and traded down 11.5% in London trading, while Lloyds climbed 1.5%.

Steven Barrow, head of Group of 10 research at Standard Bank Plc, said that "when banks have problems it's the Pound that suffers. We're in a bank dominated economy." The UK currency fell 0.6% in value against the Dollar but the Pound has continued to make gains versus the Euro, trading up to 1.1170 by the close of trading last night.

The purchase of more banking shares will add around £13 billion to the government's net cash requirement for this year, compared with the amount announced in the country's 2009 budget. Jeremy Stretch, a senior currency strategist at Rabobank International, said "the banking sector is still pretty weak. We're seeing a flow back toward the perceived safe haven of the Dollar."

The Bank of England's monetary policy committee will decide on November 5th whether to extend the bond-purchasing program beyond £175 billion, designed to lower borrowing costs and stimulate the economy. According the median estimate of economists polled, policy makers will increase purchases to £225 billion.

Former policy maker DeAnne Julius said yesterday that the BoE should cap its bond purchase plan at £200 billion, in a signal that it will stop buying assets with newly created money in the next quarter. Julius said "I would, at this meeting, ask for a small extension, say £25 billion, just to have in our back pocket in case we need to use it. But I'd be aiming to use it at a diminishing rate and looking at February to pause completely."

However, the program has thus far failed to bring the economy out of the worst recession ever recorded but shutting it down right now would be a shock to investors. The latest quarterly growth figures unexpectedly confirmed that the UK economy is still languishing in a recession, after six consecutive quarters of contraction.

Policy makers, led by the governor Mervyn King, elected to extend the quantitative easing policy by a further £50 billion for a second time in August, after starting the program in March with a £75 billion target. The European Commission said today that the region's banking industry remains "fragile" and further losses at financial institutions may total £400 billion euros.

Elsewhere, HSBC Holdings Plc, Europe's largest bank, is cutting 1,700 administrative jobs in the UK, more than 4% of its workforce in Britain. HSBC employs roughly 40,000 people in the UK and will eliminate roles in Southampton, Sheffield and Southend, adding to the highest unemployment rate in twelve years.

In a slightly more positive tone, UK house prices increased by twice as much as initial forecasts in October, as record low interest rates and a limited supply of homes buoyed the property market. Home values climbed 1.2% to an average of £165,528, after rising 1.5% in September, and demand for housing seems to be improving.

EUR/USD

The Dollar rallied to the strongest level versus the Euro in a month yesterday, amid evidence that banks are struggling to shake off the effects of the financial crisis, reducing demand for higher-yielding currencies. The U.S currency strengthened on speculation that Federal Reserve policy makers are discussing the outlook for record low borrowing costs, in preparation for the announcement today.

Steven Pearson, head of G-10 currency strategy at Bank of America Corp, said "when risk appetite falters, the Dollar still catches a bid. That is likely to remain the case for the foreseeable future as the Dollar remains the defensive currency of choice." The Dollar appreciated 0.4% against the Euro to $1.4716 in New York, after touching the strongest level since October 5th.

According to Commerzbank AG, the Dollar's revival may be short-lived and the U.S currency may extend its decline, returning to $1.50 against the Euro within the next two weeks. There is nothing to indicate "a long-term flight to safety" among investors and a report yesterday showed that U.S manufacturing grew at the fastest pace in three years.

The European Commission reported yesterday that the Euro-zone economy will return to growth next year, as it raised its forecasts even as budget deficits and unemployment swelled to the highest levels since records began in 1995. The economy will expand 0.7% in 2010 and 1.5% in 2011, after contracting 4% this year.

Data Released 4th November

U.K 00:01 Nationwide Consumer Confidence (October)

U.K 09:28 CIPS Services PMI (October)

EU 08:58 Market Services PMI (October) - Composite PMI

EU 10:00 Producer Price Index (September)

U.S 13:15 ADP Employment Report (October)

U.S 15:00 ISM Non-Manufacturing PMI (October) - Business Activity

U.S 19:15 FOMC Rate Announcement

written by Adam Solomon

FX052 TorFX - Foreign Exchange Australian Dollar Update

dan.pryor@torfx.com (TorFX) — Wed, 04 Nov 2009 02:58:56 PST

Market Update - GBP AUD

Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound three cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies like the Aussie dollar, and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a minor blip as sterling rallied back to the levels it was trading at the start of October. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains negative, although we are seeing some "green shoots" for the pound. The last two weeks' rally is too little to say the trend has changed. For that we would need to see a sustained improvement or signs of a real base being built. At the moment we have to view this bounce as a correction, and accordingly our advice is for AUD buyers to cover at least half of any requirement now while the exchange rate is trading nearly ten cents off the recent lows.

Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.

written by Jon Beddell

FX051 TorFX - Foreign Exchange New Zealand Dollar Update

dan.pryor@torfx.com (TorFX) — Wed, 04 Nov 2009 03:04:57 PST

Market Update - GBP NZD

The Reserve Bank of Australia raised interest rates today for a second time in two months. Israel and Norway are the only other nations to have started a new interest rate cycle in favour of monetary tightening. Having surprised the markets in October with a 25 basis point hike to 3.25%, the RBA gave the markets plenty of warning of today's rise, setting the scene for a muted market reaction. The Reserve Bank of New Zealand left their interest rate unchanged at 2.5% last week, but indications are that a rate rise is in the pipeline, possible before the year end.

Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound two cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies like the New Zealand dollar, and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a minor blip as sterling rallied back to the levels it was trading at the start of October. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains negative, although we are seeing some "green shoots" for the pound. The last two weeks' rally is too little to say the trend has changed. For that we would need to see a sustained improvement or signs of a real base being built. At the moment we have to view this bounce as a correction, and accordingly our advice is for NZD buyers to cover at least half of any requirement now while the exchange rate is trading over fifteen cents (or 7%) off the recent lows.

FX050 The Pound declines for a second day against the majors, as we build up to the BoE rate announcement

dan.pryor@torfx.com (TorFX) — Wed, 04 Nov 2009 03:18:08 PST

GBPEUR/GBPUSD

The Pound declined for a second successive day against the Dollar, falling back towards $1.63 in London, while the UK currency also dropped for the first time in five days versus the Euro, amid speculation that further quantitative easing may weaken the UK's financial institutions. The Bank of England's monetary policy committee will announce on Thursday 5th November whether or not they will extend the current asset purchasing program.

The Central Bank may choose to risk doing too much, rather than too little this week, as the UK economy begins to fall behind the rest of the world in terms of economic recovery. Germany and France have both exited the recession, while the latest third quarter growth estimates in the U.S showed that the world's largest economy also returned to growth in the three months through September.

In stark contrast, a report from the Office of National Statistics on October 23rd showed that the UK economy unexpectedly contracted 0.4% in the third quarter, to signal the worst and most prolonged recession ever recorded. As a result, the Governor Mervyn King and the nine member MPC will probably expand its bond purchase program by a further £50 billion to £225 billion.

An increase on Thursday would be the third time since the program started in March but policy makers are adamant that the unprecedented action to purchase government bonds with newly created money is starting to work. Officials are juggling the danger that too much spending will weaken the Pound significantly and stoke another housing boom against the risk that too timid an approach will prolong the worst slump since the Second World War.

Stewart Robertson, an economist at Aviva Investors, said that "the danger is you over-stimulate the economy, asset bubbles being the main risk as well as the Pound. But if you wait to see the impact, it's always too late." The Bank of England will also keep the benchmark interest rate unchanged at a record low of 0.5%.

The Pound has dropped 6% in value against a basket of currencies since August, despite a host of economic reports signaling that the UK economy is through the worst of the slump. The bond purchasing plan has already split the Bank of England's board once this year, when Mervyn King pushed for an increase to £200 billion in August and was rejected by six votes.

King maintained that the consequences of less stimulus "might be less severe than the possible costs of acting too cautiously". Chief economist Spencer Dale argues that a smaller increase was warranted because of the risk the program may stoke asset prices too much. Economic data since then has given justifications on both side but the third quarter growth estimates came as a big surprise, while industrial production unexpectedly slumped in August to the lowest level since 1992.

The FTSE 100 Index has gained about 10% since the Bank of England last increased bond purchases, taking its gains since its March trough to 40%. A Hometrack Ltd report last week showed that house prices increased for a third month in October, while manufacturing activity expanded at the fastest pace in two years.

A gauge based on a survey of companies rose to a reading above 53.7 in October, from 49.9 the previous month, a sign that factory production is recovering from the longest downturn on record. Yesterday's report will add to the drama of Thursday's announcement and make the decision a little tougher for officials, as they gauge whether the economy needs additional stimulus.

Other Central Banks around the world are indicating that it is time to withdraw some of the emergency measures introduced to stave off another Great Depression. Australia and Norway have already raised interest rates and ECB governing council member Axel Weber has said that the Central Bank may withdraw unlimited 12-month loans next year.

The UK economy is slower to emerge from the recession and additional quantitative easing may hurt the Pound, which has dropped 5% against the Euro since the August decision. Nick Kounis, chief European economist at Fortis Bank, said that "if others have tightening stances and the Bank of England is going full steam ahead with easing, that could put further downward pressure on the currency."

Euro and Dollar buyers may wish to take advantage of the current rate or at least place a stop order prior to the BoE rate announcement on Thursday, in case additional stimulus measures undermines the UK currency. However, some economists believe that the third quarter growth figures were so unexpected that the BoE may be reluctant to increase quantitative easing on the back of that report.

Former policy makers Charles Goodhart and DeAnne Julius said that the contraction in the third quarter shouldn't overshadow other signs that the economy is improving. Charles Duma, chairman of Lombard Street Research, also said that "the third quarter flash estimate puts the Bank of England on the spot in no uncertain fashion. But they'll want to do as little as possible, given the extraordinary uncertainties."

The Pound declined against all of the 16-most actively traded currencies yesterday, after Royal Bank of Scotland Plc, which received a government bailout last year, said it may need to sell more assets than planned to satisfy the European Union. Share prices subsequently dropped as much as 14% and the Pound is falling due to more concerns over the state of the financial sector.

The Pound slumped 0.5% to $1.6369, dropping 1.1% over the past two trading sessions. Neil Jones, head of European Hedge Fund sales at Mizuho Corporate Bank Ltd, said that "the strong correlation between the UK financial system and the Pound continues. Future prosperity of the UK economy is heavily dependent."

EUR/USD

The Dollar declined against the Euro yesterday, as we build up to this week's Federal Reserve meeting, with economic reports showing expansion in U.S housing and manufacturing sectors. Factory production in the U.S expanded in October at the fastest pace in more than three years, a sign that factories will be the main drivers of the economic revival.

The ISM index rose to a reading of 55.7, exceeding the most optimistic economist's forecast, from 52.6 in September, the second consecutive month of growth. Rising sales, boosted by the "cash-for-clunkers" program, have led to a record plunge in stockpiles that will keep assembly lines busy. More than $2 trillion in global stimulus will also boost demand but rising unemployment will impact on consumer spending.

The positive tone of the report increased risk appetite, as investors moved away from lower-yielding currencies, and the Dollar slumped 0.7% versus the Euro to $1.4843 in New York. The Euro may rise to $1.4860 this week, amid signs of an economic recovery will continue to gather momentum and reduce the appeal of the Dollar as a haven.

Data Released 3rd November

EU EC Autumn Macro Economic Forecast

U.S 15:00 Factory Orders (September)

written by Adam Solomon

TorFX - US Dollar Update

dan.pryor@torfx.com (TorFX) — Mon, 02 Nov 2009 08:12:12 PST

Market Update - GBP USD

Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound three cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a blip as sterling rose to new six week highs against the euro. However, the "safe haven" status of the dollar has meant that the pound/dollar rate has remained subdued and we are still trading in the middle of the two week range. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains positive. After staging an impressive rally off the 1.5700 lows we have spent the last two weeks consolidating, and should be well placed to continue that rally soon. A close above 1.6700 would strengthen the outlook considerably, opening the way for an attack on the recent highs above 1.7000. On the downside, a break below 1.6250 would be cause for concern.

TorFX - Euro Update

dan.pryor@torfx.com (TorFX) — Mon, 02 Nov 2009 07:53:59 PST

Market Update - GBP EUR

The short term technical outlook is positive despite today's weakness. Overcoming the growth data blip was a major development from a sentiment viewpoint, showing that the market is paying less attention to negative newsflow. "What should go down and doesn't go down can only go up" is a favourite market proverb that fits the picture. However, there can be no guarantee that sterling will continue to rise, and the best advice we can offer is to cover half of any euro requirement now, and take a "wait and see" approach on the balance. If you are selling euros, you may want to consider covering your trade now to avoid the risk of further upside in the exchange rate. We are still trading relatively close to the lows, and the risk appears to be to the upside in the short term.

Foreign Exchange Outlook Podcast - 2nd November

dan.pryor@torfx.com (TorFX) — Mon, 02 Nov 2009 03:06:25 PST

Player not working? Click here.

The foreign exchange outlook podcast from TorFX. Bringing you up to the minute currency market news.

You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.

Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.

The Pound rallies by the most since January against the Euro

dan.pryor@torfx.com (TorFX) — Mon, 02 Nov 2009 01:47:09 PST

GBPEUR/GBPUSD

Following on from last week, the Pound weakened slightly against the Dollar on Wednesday, but the UK currency made impressive gains versus the higher-yielding currencies like the Australian Dollar and South African Rand, as stocks slumped for a seventh consecutive day. Commodities also declined as global risk appetite waned and the MSCI World Index dropped 0.6%.

Sterling maintained its advance against the Euro for a third straight day, rising above 1.11 in London, after declining 1.9% following the GDP report earlier in the month. The FTSE 100 Index slid 1.5%, as reports from a number of financial institutions disappointed investors, and speculation increased that regulators may force banks to break up to strengthen balance sheets.

The FTSE 100 has retreated to a three-week low over the past week, as concerns increase that the seven month rally may have taken share prices too high relative to prospects for earnings growth. The gauge is still up 46% from this year's low on March 3rd and the global decline in risk appetite has encouraged investors to seek the security of safe haven assets in favour of low cost loans in Japan.

Copper dropped for a third straight day, while oil and gold prices also declined. Peter Frank, a currency strategist at Societe Generale SA, said that "we've had a bit of risk aversion in equity markets. The Pound isn't looking as if it could outperform the Dollar or the Yen in a risk averse situation." The Pound fell 0.2% against the Dollar to $1.6330 in London.

The increase in risk aversion helped Sterling appreciate over 2% against the Australian Dollar to 1.8220 and almost 3% in value versus the South African Rand. Sean Maloney, a fixed-income strategist at Nomura International Plc in London, said that "we've had a move upwards in all the markets and perhaps we're taking a bit of stock ahead of the supply we've got coming up in the five-year auction in the U.S."

The Bank of England's Monetary Policy Committee will decide on November 5th whether to extend the £175 billion bond purchasing plan, as the UK economy languishes in the worst recession on record. Frank at Societe Generale SA, said "that really is the key to whether the Pound is going to rally or not. The leading indicators are beginning to turn up."

Governments and Central Banks around the world are preparing to remove stimulus measures, after spending a total of $12 trillion, by International Monetary Fund estimates, to drag the global economy out of recession. Separately, the Land Registry said on its website last week that UK house prices rose 0.9% in September.

The Pound has risen sharply against the Euro over the past week and it will be interesting to gauge whether the UK currency can sustain this momentum going into this week. The rate announcement on November 5th is shaping up to be hugely significant in determining Sterling sentiment over the coming months, Euro and Dollar buyers may wish take advantage of the current rate or at least place a stop order.

The Pound rallied strongly against the U.S Dollar on Thursday, reaching a high of $1.6600 in London, while the UK currency also rose for a fourth straight day versus the Euro, briefly touching upon 1.1200. A report from the Bank of England showed that UK mortgage approvals increased more than initial estimates in September.

Banks and lenders granted 56,125 home loans, compared with 52,970 in August, as approvals climbed to the highest level in 18 months and added to signs that the housing market is stabilising. Bank of England policy makers will decide on Thursday whether to expand the £175 billion asset-purchase program of buying government debt to bolster the economy.

The third quarter GDP figures showed that the UK economy remains entrenched in the worst recession on record, after contracting for six consecutive quarters and economists have warned that the housing revival may come under scrutiny if job losses mount. James Knightly, an economist at ING Financial Markets, said "it will be a very tight decision for the Bank of England. The fact that gross domestic product is still negative will make it pretty difficult for them to do anything other than expand quantitative easing."

The Pound has rallied furiously against the majors in spite of the GDP numbers last week, amid speculation that the third quarter growth figures will be revised higher. The Pound extended gains made against the Dollar and traded above $1.65, after the opening of the U.S trading session. Recent reports have indicated that housing sector is recovering, after falling as much as a fifth from their peak in 2007.

Former Bank of England policy maker David Blanchflower said on October 26th that house prices may fall next year, leaving as many as 3 million people with homes worth less than the mortgages used to buy them. Monthly mortgage approvals are still only half what they were in September 2007, prior to when the credit crisis began.

Consumer spending may also be slow to recover as Britons choose to reduce their 1.46 trillion of debts built up during a decade long economic boom. Spending, which accounts for roughly two thirds of the economy, declined in September, while consumer credit also fell for a third straight month. The data released last week suggests that the Bank of England's efforts to unlock credit markets may be beginning to work.

Economists are divided over whether the Monetary Policy Committee should expand its bond-purchasing program on November 5th, after the economy contracted 0.4% between July and September. The gain in Sterling yesterday propelled the UK currency to its first monthly advance versus the Dollar since July.

The Pound continued to make gains against the Dollar towards the end of last week, as data released in the U.S showed that the economy returned to growth in the third quarter. U.S gross domestic product expanded 3.5% from July to September, the first expansion in more than a year, and surpassed the 3.2% forecast. Henrik Gullberg, a strategist at Deutsche Bank AG, said that "if we get strong data, be that in the UK or globally, it's a good thing for Sterling."

The UK currency was also poised to break three consecutive months of declines versus the Euro, even after last week's GDP report from the Office of National Statistics. The Pound advanced 0.5% against the Euro on Thursday and may encounter strong resistance between 1.1200-1.1270. Gullberg also said yesterday that "the market overreacted to the weak GDP numbers in the UK, What we have seen since is the market has moderated its bearish opinion."

The Pound lost some ground against the higher-yielding currencies, as the stronger-than-expected U.S data helped encourage investors back to riskier assets. UK stocks advanced 0.4% in London, after the report reignited expectations that a seven month rally is justified by the earnings outlook. The focus will soon switch to the BoE rate announcement and it will be interesting to see whether the Pound can hold on to the recent gains made against both the Euro and the Dollar.

EUR/USD

The Dollar and the Japanese Yen declined against most of the 16 most actively traded currencies last week, after the U.S economy returned to growth in the third quarter and encouraged investors away from the so-called "safe haven" assets. The U.S currency dropped against the Euro for the first time in five days, as stocks and commodities rallied worldwide.

Michael Woolfolk, a senior currency strategist at New York Mellon Corp, said "risk is back on. It should be positive for the stock market and negative for the Dollar." The Dollar declined 0.6% against the Euro in New York, despite comments from European Central Bank member Axel Weber, that the Bank may start to withdraw its emergency stimulus measures next year.

U.S policy makers will now focus on whether the recovery, supported by Federal assistance to the housing and auto industries, can be sustained into 2010 and revive the labour market. The record $1.4 trillion budget deficit limits President Obama's options more emergency stimulus, while Fed officials try to convince investors that the Central Bank will exit emergency programs.

The Dollar gained the most against the Euro in six months on Friday, amid concerns that the global economic recovery may stall. Central Banks are expected to scale down fiscal stimulus measures, reducing demand for higher-yielding assets funded by the Dollar. Michael Hart, a currency strategist at Citigroup Global Markets, said "there's this increasing recognition that much of the recovery we've seen so far was due to the temporary boost from various government programs".

The German retail sales index recorded a further decline for September, following a revised 1.8% fall the prevuious month. Risk appetite also faded on Friday and the Dollar strengthened back towards $1.4710 against the Euro. The series of interest rate decisions will be very significant market drivers this week and in particular, there will be further speculation over a potential change in language by the Federal Reserve.

Data Released 1st November

U.K 09:28 CIPS Manufacturing PMI (October)

U.S 15:00 Construction Spending (September)

U.S 15:00 ISM Manufacturing (October)

U.S 15:00 Pending Home Sales (September)

written by Adam Solomon

Foreign Exchange Outlook Podcast - 30th October

dan.pryor@torfx.com (TorFX) — Fri, 30 Oct 2009 03:41:58 PDT

The Pound rallies strongly against the majors, amid a revival in risk appetite

dan.pryor@torfx.com (TorFX) — Fri, 30 Oct 2009 01:28:01 PDT

GBPEUR/GBPUSD

The Pound rallied strongly against the U.S Dollar yesterday, reaching a high of $1.6600 in London, while the UK currency also rose for a fourth straight day versus the Euro, briefly touching upon 1.1200. A report from the Bank of England showed that UK mortgage approvals increased more than initial estimates in September.

Banks and lenders granted 56,125 home loans, compared with 52,970 in August, as approvals climbed to the highest level in 18 months and added to signs that the housing market is stabilising. Bank of England policy makers will decide next week whether to expand the £175 billion asset-purchase program of buying government debt to bolster the economy.

The third quarter GDP figures showed that the UK economy remains entrenched in the worst recession on record, after contracting for six consecutive quarters and economists have warned that the housing revival may come under scrutiny if job losses mount. James Knightly, an economist at ING Financial Markets, said "it will be a very tight decision for the Bank of England. The fact that gross domestic product is still negative will make it pretty difficult for them to do anything other than expand quantitative easing."

The Pound has rallied furiously against the majors in spite of the GDP numbers last week, amid speculation that the third quarter growth figures will be revised higher. The Pound extended gains made against the Dollar yesterday and traded above $1.65, after the opening of the U.S trading session. Recent reports have indicated that housing is recovering, after falling as much as a fifth from their peak in 2007.

Former Bank of England policy maker David Blanchflower said on October 26th that house prices may fall next year, leaving as many as 3 million people with homes worth less than the mortgages used to buy them. Monthly mortgage approvals are still only half what they were in September 2007, prior to when the credit crisis began.

Consumer spending may also be slow to recover as Britons choose to reduce their 1.46 trillion of debts built up during a decade long economic boom. Spending, which accounts for roughly two thirds of the economy, declined in September, while consumer credit also fell for a third straight month. The data released yesterday suggests that the Bank of England's efforts to unlock credit markets may be beginning to work.

Economists are divided over whether the Monetary Policy Committee should expand its bond-purchasing program on November 5th, after the economy contracted 0.4% between July and September. The gain in Sterling yesterday propelled the UK currency to its first monthly advance versus the Dollar since July.

The Pound also rallied against the Dollar, as data released in the U.S yesterday showed that the economy returned to growth in the third quarter. U.S gross domestic product expanded 3.5% from July to September, the first expansion in more than a year, and surpassed the 3.2% forecast. Henrik Gullberg, a strategist at Deutsche Bank AG, said that "if we get strong data, be that in the UK or globally, it's a good thing for Sterling."

The UK currency was also poised to break three consecutive months of declines versus the Euro, even after last week's GDP report from the Office of National Statistics. The Pound advanced 0.5% against the Euro yesterday and may encounter strong resistance between 1.1200-1.1270. Gullberg also said yesterday that "the market overreacted to the weak GDP numbers in the UK, What we have seen since is the market has moderated its bearish opinion."

The Pound lost some ground against the higher-yielding currencies, as the stronger-than-expected U.S data helped encourage investors back to riskier assets. UK stocks advanced 0.4% in London, after the report reignited expectations that a seven month rally is justified by the earnings outlook. The focus will soon switch to the BoE rate announcement and it will interesting to see whether the Pound can hold on to the recent gains made against both the Euro and the Dollar.

EUR/USD

The Dollar and the Japanese Yen declined against most of the 16 most actively traded currencies yesterday, after the U.S economy returned to growth in the third quarter and encouraged investors away from the so-called "safe haven" assets. The U.S currency dropped against the Euro for the first time in five days, as stocks and commodities rallied worldwide.

Michael Woolfolk, a senior currency strategist at New York Mellon Corp, said "risk is back on. It should be positive for the stock market and negative for the Dollar." The Dollar declined 0.6% against the Euro in New York, despite comments from European Central Bank member Axel Weber, that the Bank may start to withdraw its emergency stimulus measures next year.

U.S policy makers will now focus on whether the recovery, supported by Federal assistance to the housing and auto industries, can be sustained into 2010 and revive the labour market. The record $1.4 trillion budget deficit limits President Obama's options more more emergency stimulus, while Fed officials try to convince investors that the Central Bank will exit emergency programs.

Data Released 30th October

U.K 00.01 Gfk Consumer Confidence Survey

EU 10:00 Flash HICP (October)

EU 10:00 Unemployment (September)

U.S 12:30 Employment Cost Index (Q3)

U.S 12:30 Personal Income / Consumption (September)

- Core PCE

U.S 13:45 Chicago PMI (October)

U.S 13:55 Michigan Sentiment (October Final)

written by Adam Solomon

The Pound rallied against the high-yielding currencies yesterday, as risk appetite deteriorated

dan.pryor@torfx.com (TorFX) — Thu, 29 Oct 2009 09:53:20 PDT

GBPEUR/GBPUSD

The Pound weakened slightly against the Dollar yesterday, but the UK currency made impressive gains versus the higher-yielding currencies like the Australian Dollar and South African Rand, as stocks slumped for a seventh consecutive day. Commodities also declined as global risk appetite waned and the MSCI World Index dropped 0.6%.

Sterling maintained its advance against the Euro for a third straight day, rising above 1.11 in London, after declining 1.9% following the GDP report last week. The FTSE 100 Index slid 1.5%, as reports from a number of financial institutions disappointed investors, and speculation increased that regulators may force banks to break up to strengthen balance sheets.

The FTSE 100 has retreated to a three-week low this week, as concern increases the seven month rally may have taken share prices too high relative to prospects for earnings growth. The gauge is still up 46% from this year's low on March 3rd and the global decline in risk appetite has encouraged investors to seek the security of safe haven assets in favour of low cost loans in Japan.

Copper dropped for a third straight day, while oil and gold prices also declined. Peter Frank, a currency strategist at Societe Generale SA, said that "we've had a bit of risk aversion in equity markets. The Pound isn't looking as if it could outperform the Dollar or the Yen in a risk averse situation." The Pound fell 0.2% against the Dollar yesterday to $1.6330 in London.

The increase in risk aversion helped Sterling appreciate over 2% against the Australian Dollar to 1.8220 and almost 3% in value versus the South African Rand. Sean Maloney, a fixed-income strategist at Nomura International Plc in London, said yesterday that "we've had a move upwards in all the markets and perhaps we're taking a bit of stock ahead of the supply we've got coming up in the five-year auction in the U.S."

The Bank of England's Monetary Policy Committee will decide on November 5th whether to extend the £175 billion bond purchasing plan, as the UK economy languishes in the worst recession on record. Frank at Societe Generale SA, said "that really is the key to whether the Pound is going to rally or not. The leading indicators are beginning to turn up."

Governments and Central Banks around the world are preparing to remove stimulus measures, after spending a total of $12 trillion, by International Monetary Fund estimates, to drag the global economy out of recession. Separately, the Land Registry said on its website yesterday that UK house prices rose 0.9% in September.

The Pound has risen sharply against the Euro this week and it will be interesting to gauge whether the UK currency can sustain this momentum going into next week. The rate announcement on November 5th is shaping up to be hugely significant in determining Sterling sentiment over the coming months, Euro and Dollar buyers may wish take advantage of the current rate or at least place a stop order.

EUR/USD

The Dollar and the Japanese Yen gained against most of the 16-most actively traded currencies, amid speculation that an unexpected decrease in U.S new home sales dampened demand for higher-yielding assets. Sales of new homes decreased 3.6% to a 402,000 annual pace, lower than preliminary estimates, a sign that the housing recovery may lose its momentum.

The Dollar has posted its longest rally against the Euro since mid August, rising for a fourth consecutive day, on evidence that housing is declining and mortgage applications fell 12% to a two month low. Global investors have much less tolerance for riskier assets than they did before the global financial crisis, and a sustained decline in the stock market is supporting Dollar sentiment.

The Australian Dollar declined against the U.S Dollar and the majority of the major currencies, following reports that inflation slowed in September. The fall in consumer prices will ease speculation that the Reserve Bank of Australia will speed up interest rate increases. The decline in stocks and commodities is also weighing on the Australian Dollar, as traders move away from riskier assets.

Data Released 29th October

U.K 09:30 Mortgage Applications

EU Economic Sentiment (October)

- Industrial / Consumer / Services

GER 09:00 Unemployment (October)

U.S 12:30 Advanced GDP (Q3)

- Deflator

U.S 12:30 Initial Jobless Claims (w/e 24th October)

written by Adam Solomon

The Pound rallies for a second day against the majors, after retail sales climbs to the highest level in two years

dan.pryor@torfx.com (TorFX) — Thu, 29 Oct 2009 09:54:42 PDT

GBPEUR/GBPUSD

The Pound rallied for a second day against the Dollar yesterday, rising to a high of $1.6436 in London, while the UK currency also consolidated on recent gains made against the Euro. The Confederation of British Industry reported that UK retail sales climbed to the highest level in almost two years in October, with retailers the most optimistic since December 2007.

Retailers saying that sales increased from a year earlier outnumbered those reporting declines by 8 percentage points, up from 3 points in September. The buoyant tone of the report follows data released yesterday that showed business confidence rose to the highest level in 18-months and the Bank of England must decide whether it is necessary to inject additional stimulus measures.

Steven Barrow, head of Group of 10 research at Standard Bank Plc, said yesterday that "if the market is broadly positioned for an extension of quantitative easing, the risk of a big move is more of a rally in sterling if it doesn't happen" The Pound's back-to-back gain against the Euro was the first in more than a week and the resilience in Sterling following the GDP data last week is causing many economists to believe that the figures will be revised higher over the coming months.

Bank of England policy maker Adam Posen was speaking this week and said that there are tentative signs of an economic recovery in Britain, despite reports of an unexpected third-quarter contraction. Jeremy Stretch, a senior currency strategist at Rabobank International said that the CBI data and Posen comments "add another element of doubt in the validity of the third quarter numbers last week. Maybe it's a case that they will wait and see on quantitative easing."

The Pound advanced against 11 out of the 16 most actively traded currencies, rising up to 0.6% against both the Dollar and the Euro, prior to a report in the U.S showed that consumer confidence unexpectedly fell this month. The UK currency also gaining momentum on speculation that the Bank of England will be amongst the first central banks to begin raising interest rates.

Easing credit market conditions and a revival in global demand suggests that the UK is emerging from the recession quicker than the GDP numbers indicate. However, according to Posen, officials should maintain the current stimulus programs in order to cement the recovery and the MPC will probably extend quantitative easing next month.

Posen said on Monday that the 0.4% drop in gross domestic product in the third quarter doesn't imply anything for the forecasts, that policy makers produce for the November 5th decision. There's evidence of a sustained economic recovery, even if Britain is lagging behind other countries, such as Germany and France, in pulling out of the recession.

The Pound suffered its biggest drop since March on Friday 23rd October, after the GDP numbers increased speculation that policy makers would extend the bond purchasing program beyond the current £175 billion. According to the Taylor Rule, the UK currency's declines over the past quarter has left it 22% undervalued on a purchasing power parity basis.

Stephen Gallo, head of market analysis at Schneider Foreign Exchange, said that a weaker currency may help Britain emerge from the recession. "A country like the UK that needs to rebalance towards net exports can do with a modest but stable devaluation of Sterling." Analysts at Commerzbank AG speculate that the Pound will weaken to 1.0600 versus the Euro over the coming weeks.

EUR/USD

The lower-yielding currencies rallied against most of their major counterparts yesterday, as the Dollar advanced versus the Euro for a third straight day in the longest stretch of gains since August. U.S consumer confidence fell this month, reducing the demand for higher-yielding assets, as traders sought the relative security of Dollar denominated assets.

The Dollar appreciated 0.5% to $1.4804 in New York , amid concerns that global growth will fail to justify the valuations assigned to stocks and commodities. The rally in such securities is probably at its peak and recent data indicates that U.S economic growth is still lagging behind historical averages.

Vassili Serebriakov, a strategist at Wells Fargo & Co, said that "consumer confidence is weak. There's to an extent a disconnect between what financial markets are telling us and what the economic data is telling us." The Conference Board's consumer confidence index dropped to a reading of 47.7 in October, from a revised 53.4 in the previous month.

Data Released 28th October

U.K 11:00 Land Registry House Prices (September)

EU 09:00 ECB Bank Lending Survey Published

U.S 12:30 Durable Goods Orders (September)

U.S 14:00 New Home Sales (September)

written by Adam Solomon

Foreign Exchange Outlook Podcast - 27th October

dan.pryor@torfx.com (TorFX) — Tue, 27 Oct 2009 08:08:45 PDT

The Pound rallies against the majors on speculation the decline was exaggerated

dan.pryor@torfx.com (TorFX) — Tue, 27 Oct 2009 02:12:55 PDT

GBPEUR/GBPUSD

The Pound rallied against the Dollar and the Euro yesterday, amid speculation that the UK currency's decline on Friday was exaggerated, given the prospects for an economic recovery. The Pound rebounded from a low of $1.6254 against the U.S Dollar, after earlier extending its drop of 1.9%, the biggest decline since March 9th.

Economist at Goldman Sachs Group Inc Ben Broadbent and Kevin Daly said that last week's report from the Office of National Statistics, showing that the economy unexpectedly shrank in the third quarter, may be "revised significantly higher in time." The Pound is currently trading at the weakest level against the Euro in a decade and is making UK products less expensive and turning Goldman Sachs Group inc into Sterling bulls.

Purchasing power parity, a measure of the relative cost of goods, shows that the UK currency is 22% below where it should be. Sterling hasn't been so cheap since 1999, after the Bank of England flooded the economy this year with £175 billion buying government and corporate bonds. The move was intended to keep borrowing costs from rising, as the economy shrinks, and policy makers may well increase that amount in the November 5th meeting.

UK assets have been dramatically discounted, as the seizure in global credit markets drove the economy into its worst recession since the Second World War. The government was forced to take stakes in two of the country's biggest banks, to save them from bankruptcy and the Labour Party currently trails the Conservatives by 17 percentage points.

The government report last week showed that UK gross domestic product surprisingly shrank 0.4% in the three months through September, continuing the longest contraction of six consecutive quarters, since records began in 1955. Nevertheless, the Pound rallied 0.4% against the Dollar yesterday to a high of 1.6670 in London and 1% versus the Euro, as concerns grow over the impact of a strong Euro on exports in the region.

The Pound may struggle to hold on to yesterday's gains, as speculation mounts that the Bank of England will extend the quantitative easing program in November and pump more money into the economy to revive growth. The Pound's slide is fueling mergers and acquisitions in the UK, bringing the first net inflows to the country in three years. The last time that happened in 2006, the Pound jumped 2.1% versus the Euro and 13% against the Dollar, the biggest gain in 16-years.

Goldman Sachs predicted this month that Sterling will appreciate 9% versus the Euro to 1.1905 and by 14% to $1.85 against the Dollar, even as UK debt quintuples as a percentage of gross domestic product. According to Deutshce Bank AG, investors underestimate the risk that the BoE will increase interest rates from the current record low of 0.5%.

According to study by analysts on the Taylor Rule, an economics equation for predicting central bank moves based on policy makers' tolerance for inflation and unemployment, rates should be about 2.75 percentage points higher than the current level. However, futures contracts predict less than a quarter percent increase by April 2010, the biggest disparity among the Group of 10 economies.

Henrik Gullberg, a strategist at Deutsche Bank, said that "the Bank of England is the most out of line among the G-10 nation in terms of policy." The rate is likely to rise to 1.25% by the end of 2010, with increases starting in the second quarter. The ECB and the Federal Reserve probably won't alter borrowing costs until at least the third quarter.

Elsewhere yesterday, the Pound also received a boost as UK business confidence rose to the highest level in 18-months. According to a report from KPMG, nineteen percent of executives say that the outlook for business is "good" or "very good", up from 9% in the previous quarter. Consumer prices are also poised to rise faster than any other developed economy, as the inflation rate holds steady at 2.1% this year.

The Pound fell 4.4% against the Dollar in August and September, the largest two month decline this year, amid suggestions that the Bank of England favour a weaker currency and expanding the asset purchase program. The UK currency also lost 6.9% against the Euro, prompting Citigroup Inc and BNP Paribas SA to predict Sterling would reach parity with the Euro by the first quarter of 2010.

The UK budget deficit will swell to £175 billion in the year ending March 2010, roughly 12.4% of gross domestic product, the highest amongst the Group of 20 nations. The deficit was 77.3 billion in the first six months of the year, the largest for any half year period since records began in 1946. Peter Lucas, an investment strategist at RBC Wealth Management, said that "there might be scope for the Pound to rise in the near-term, but these underlying issues do require the Pound to be an undervalued currency for some time."

A number of influential economists are seemingly turning bullish on Sterling with Goldman Sachs and JP Morgan Chase & Co advising clients to buy the Pound, as the market looks too bearish on the UK economy and way too short on Sterling. Barclays also predicts that the Pound will rise about 8% to $1.76 in March and 1.1764 versus the Euro.

EUR/USD

The Dollar advanced against the Euro yesterday, reversing a drop to the lowest level in 14-months, amid speculation that the Dollar's decline beyond $1.50 will be difficult to sustain. The U.S currency also rose against a basket of currencies on bets that a drop in stocks would discourage investors from purchasing higher-yielding assets.

Vassili Serebriakov, a currency strategist at Wells Fargo & Co in New York, said that "at some point, the Euro will fall victim to its own success. We've seen the Euro touching new highs but really struggling to extend them significantly." The Dollar advanced 0.7% to $1.4905 against the Euro, from $1.5008 at the close of trading on Friday.

The Dollar is also being buoyed by speculation that the Federal Reserve will divert away from ultra-loose policy and begin to tighten interest rates. Officials in the U.S are contemplating the best way to let the market know that a period of record low interest rates will draw to an end. The issue may be on the table when the FOMC meets in early November.

Data Released 27th October

U.K 11:00 CBI Distributive Trade Balance (October)

EU 09:00 M3 / 3 Month Moving Average (September)

U.S 13:00 Case Shiller House Prices (August)

U.S 14:00 Consumer Confidence (October)

written by Adam Solomon

Foreign Exchange Outlook Podcast - 26th October

dan.pryor@torfx.com (TorFX) — Mon, 26 Oct 2009 05:24:38 PDT

The Pound declines against the majors, after GDP unexpectedly declines in the third quarter

dan.pryor@torfx.com (TorFX) — Mon, 26 Oct 2009 09:16:44 PDT

GBPEUR/GBPUSD

Following on from last week, the Pound advanced to the highest level against the Dollar in more than a month on Tuesday, while 10-year gilts increased by the most since July 23rd. The minutes from the Bank of England's last policy-setting meeting showed that all nine policy makers voted unanimously to keep the asset-purchase program unchanged.

However, the UK currency remains susceptible to downward pressures and declined against the majors on Thursday, after a report showed that UK retail sales unexpectedly stagnated for a second month in September. While investors scaled expectations that the Bank of England will pause its asset-purchase plan. The report from the Office of National Statistics showed that sales were unchanged from August, a sign that the economy is struggling to emerge from the recession.

Rising unemployment and tighter credit conditions are discouraging consumers' from spending and reports last week signals that weakness in the economy is persisting at a time when policy makers are considering whether to increase quantitative easing from the current £175 billion. James Shugg, an economist at Westpac Banking Corp, said yesterday that "there will be retrenchment as households pay down debt. The economy still needs quite a lot of support. The BoE will extend the quantitative easing program in November."

The Pound fell towards $1.6530 against the Dollar after the report, from $1.6630 earlier in the session, as food sales slipped 0.1%, while textile, clothing and shoe sales fell 0.5% on the month. J Sainsbury Plc, the UK's third biggest supermarket, reported decelerating sales this month and said that revenue growth will become more difficult to achieve.

Rising unemployment is set to further hinder the economic recovery, while the number of people out work in the three months through August rose by the smallest amount in a year, the jobless rate, at 7.9%, is still the highest in more than a decade. The BoE governor Mervyn King and policy maker David Miles have pushed for a bigger expansion of bond purchases in August and still believe that the outlook for consumer prices is volatile.

The Pound dropped by the most in almost two weeks against the Dollar, after the Deputy Governor of the Central Bank Paul Tucker said that expanding so-called quantitative easing is "possible" if necessary. Ian Stannard, a foreign-exchange strategist at BNP Paribas SA, said that "the weaker retail sales reading is weighing on the Pound. There seems to be a desire to extend quantitative easing from certain BoE policy makers."

The Pound declined heavily against all of the 16 most actively traded currencies on Friday, after a report from the Office of National Statistics unexpectedly showed that UK gross domestic product dropped in the third quarter. Enduring slumps in services, manufacturing and construction has kept the economy entrenched in the worst recession on record.

Gross domestic product dropped 0.4% from the previous quarter, despite widespread forecasts of 0.2% increase. The economy has now contracted in six consecutive quarters, the most since records began in 1955. The Chancellor of the Exchequer Alistair Darling said this week that he will focus on spurring economic growth, as he struggles to cement the recovery in time for the general election in June.

The data released this morning, the first of the third quarter from the Group of Seven nations, suggests that Britain may turn out to be the last major economy to exit the recession. The report will also spark speculation that the Bank of England will expand upon its quantitative easing program in November, a move that would curtail Sterling sentiment.

The Pound has plunged under 1.10 versus the Euro and fell by the most in six months versus the single currency in London. The Pound will probably fall further towards the support at 1.0750 and latterly 1.0680, as the report on third quarter GDP gave the Bank of England more impetus to keep enacting emergency measures to spur growth.

Seven months after policy makers embarked on an unprecedented policy to rescue the economy from the worst recession in a generation, the Office of National Statistics report that their efforts thus far have proved to be unsuccessful. Stephen King, chief global economist at HSBC Holdings Plc, said that "having pumped in so much money and still seeing a decline in GDP is damaging from a perspective of confidence and expectations for recovery. They'll be thinking very hard about whether to extend quantitative easing. They need to do something to show they care about the economy."

The UK economy is still mired in the worst recession since the Second World War, even after pledges of about one trillion pounds in stimulus and banking aid from the government and the Bank of England. Mervyn King, whose push to expand bond purchases to £200 billion in August was defeated, may win some support at the next announcement on November 5th.

The prolonged economic slump dashes hopes that the UK is poised to follow the U.S, Germany and France out of recession. In terms of economic data, the focus will fall on a report from the Confederation of British Industry, alongside the Nationwide and Housetrack data on the UK housing market. Consumer confidence is expected to climb, while the banking and house price data will be watched for any improvement.

The Pound will remain vulnerable this week, after the shocking news that the UK economy contracted 0.4% in the third quarter. As speculation builds ahead of the November meeting, investors will be paying close attention to comments from the BoE's Posen and Bean, who are due to speak this week. The UK currency may extend its decline against the majority of the major currencies and Euro and Dollar buyers would be well placed to work stop orders in the market to protect against a sustained and aggressive downward move.

EUR/USD

The Dollar bounced back from a near 14-month low against the Euro last week, amid speculation that the U.S job market will be slow to recover and China will end fiscal and monetary stimulus, reducing investors appetite for riskier positions. The U.S currency strengthened 0.2% to $1.4989 against the Euro in New York, after breaking through the $1.50 barrier on Wednesday.

The Dollar weakened beyond $1.50 for the first time since August 2008, amid signs that the economic recovery encouraged investors to sell the Dollar in favour of higher-yielding assets. The U.S currency may remain under pressure in the near term, as the Federal Reserve trails other central banks in raising borrowing costs.

According to a gauge of technical analysis, the Euro may strengthen towards $1.5283 against the Dollar over the coming weeks, after briefly surpassing the pivotal $1.50 level. Howard Friend, chief market strategist at MIG Investments, said yesterday that "bulls retain overall control. The key technical factor remains the completed double-bottom base pattern with the $1.4719 December breakpoint."

The Euro has strengthened 15% against the Dollar over the past six months and the ECB President Jean-Claude Trichet said on Monday that "excessive volatility" in currencies is "bad for economic development". Risk appetite was also generally weaker in early European trading, which helped underpin the Dollar to some extent.

Yuji Saito, head of the foreign exchange group in Tokyo at Societe Generale SA, said that "European officials are expressing worry that the Euro's appreciation is making things difficult for their economy. This is causing the Euro to undergo a downward correction." The Euro was trading at $1.4939 in London, marginally down from the previous trading day. The single currency may extend its decline, as officials become increasingly concerned with the strength of the Euro and the impact on exports.

In terms of economic data, the focus in the U.S this week will undoubtedly fall on Wednesday's GDP figures for the third quarter. The report is expected to show a return to growth for the first time since June 2008, as consensus forecasts show a 3.3% rise in output. In the Euro-zone, the focus will be on the EC Sentiment index for September, which are expected to continue their upward trend.

Data Released 26th October

U.K 00.01 Hometrack House Prices (October)

GER 07:00 Gfk Consumer Confidence (November)

written by Adam Solomon

Foreign Exchange Outlook Podcast - 23rd October

dan.pryor@torfx.com (TorFX) — Fri, 23 Oct 2009 07:08:54 PDT