Daily currency report
Overview
The euro and the British pound are flying near four-month highs against a vulnerable US dollar as most investors presume that the Federal Reserve might do more to stimulate a slowing US economy. However, failure by the Federal Reserve to launch another quantitative easing programme could force those flights to make an emergency landing.
Divided opinions about what is in store is likely to keep currency markets mixed with Germany’s announcement expected to get the volatility ball rolling. Before that however, investors will study Britain’s latest trade figures to see how manufacturers are performing and the Bank of England’s David Miles will also offer his monetary thoughts. The US will also release its latest trade figures that are forecast to show US exports suffering from the US dollar’s strength over the summer months.
Sterling
The pound is likely to make some progress against the euro, having fallen to two-month lows in recent sessions as traders prepare escape routes from the single in front of upcoming event risks in Europe. Cable has also maintained near four-month highs, with the US dollar being squeezed ahead of a Federal Reserve announcement that could bring about another mammoth growth-boosting liquidity injection. However, should the Federal Reserve finally put an end to speculation and uncover its money-printing machine for the third time; the pound could tumble against its rivals offering a better interest rate return.
US dollar
Uncertainty going into high-profile Federal Reserve monetary policy decision is keeping the US dollar vulnerable although the US currency did manage to find its feet a little. The greenback hid as investors debated over what Germany will decide about Europe’s new bailout fund. That allowed the US dollar a chance to catch its breath following a thumping at the hands of weak employment data, something Federal Reserve Chairman, Ben Bernanke, had previously described as a “grave concern”.
Euro
The euro is slowing stepping back from record highs with investors fearing that a decision in Germany could punch a hole in the European Central Bank’s new bond-buying life jacket for the eurozone. The German constitutional court will decide whether or not it is actually legal for Berlin to participate in Europe’s new-look bailout fund, the European Stability Mechanism; a facility that is designed to have more firepower but with most of the ammunition expected to come from German taxpayers.