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Daily currency report

Overview

Sentiment figures released recently in the UK, EU and US all confirm an economic slowdown. US consumer confidence dropped to four-year lows while the GfK consumer confidence in the UK also dipped into territory seen during the Lehman Brothers crisis with the EU consumer sentiment also plunging into similar territory. Weak confidence figures and a dovish release of the US FOMC minutes has increased speculation that the Fed will take simulative measures at its next FOMC meeting, which is supporting equity markets. Higher equity markets traditionally mean weaker safe haven currencies, but this correlation could break down this week. Demand for safe haven currencies should remain high even when equity markets are moving higher on hopes of more stimuli.

Sterling

GfK consumer sentiment in the UK was released above market forecasts for the month of August. The data, while better than expected, may not offer much support for sterling given the mixed data released. Confidence figures at these levels in the past have signalled another slide into recession.

US dollar

The good news from Monday was completely wiped out with the release of the consumer confidence figures that plunged to two-year lows. The confidence figures are seen as a leading indicator for demand which makes up 70 per cent of the US economy. Question marks over the debt ceiling, dropping equity markets and a weak labour market contributed to the slide.

Euro

The weaker economic sentiment figures that were seen in the eurozone mimicked the softer confidence figures seen in Germany last week. Consumer confidence was particularly weak dipping into territory seen back when Lehman Brothers failed. That will not bode well for demand. The data helped to cap euro gains as did a lacklustre Italian bond auction. The European Central Bank was again seen buying Italian debt to shore up demand before the fresh Italian debt went on sale. However, the lack of demand continues to place a question mark over the EU’s ability to get a handle on its debt crisis.

Japanese yen

The Japanese yen could be looking to see some small gains after economic data reflected slower global growth, which tends to weaken sentiment and prompt a run into safe haven currencies such as the yen.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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