Daily currency report

Risk appetite edged marginally higher after European officials finally appear to be coming together. Germany backed calls from the International Monetary Fund to offer banks more support should they need it, however, the admission only highlights a mounting list of problems for the eurozone. Better than expected US data also helped alleviate global growth concerns, and as result, investors cautiously drew back from safe harbour positions and equity markets also recovered some of their earlier declines. The pound failed to keep up with the markets improved tone though, after the downward revisions to second quarter UK growth estimates naturally strengthened calls for more Bank of England quantitative easing. The Bank of England’s policy announcement, will be the most immediate concern for investors with many analysts split on whether the group will expand its bond purchasing program. The European Central Bank will conclude its October policy meeting which will be Jean-Claude Trichet’s last as President. Such is the uncertainty surrounding eurozone monetary policy, circulating rumours suggest that the Swiss National Bank are preparing yet more intervention in currency markets in order to protect the Alpine economy.

Sterling

Surprisingly, sterling held steady after upbeat UK services data helped to offset downward revisions to second quarter growth. However, business and consumer spending looks set to tighten amidst rising unemployment and government austerity.

US dollar

Investors’ thirst for safe harbour currencies lessened somewhat after better than expected US data helped alleviate global growth concerns. ADP’s September report revealed a better than expected increase in private sector employment although future prospects remained worrying.

Euro

Eurozone officials continue to drag their heels on a solution for Greece as well as the area’s emergency mechanisms, thus keeping the euro within touching distance of 10-month lows in comparison to the US dollar. Meanwhile, fundamentals persistently point towards another recession for the common currency group after its services sector shrank for the first time in two years.

Japanese yen

The Japanese yen is fast approaching 1-year highs against the Swiss franc on speculation that Swiss authorities are preparing a fresh round of intervention. Widespread rumours, though yet to be confirmed, suggest the Swiss National Bank is considering selling more of its currency unit in order to raise its peg against the euro.

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