Daily Currency report
The British pound produced a remarkable rally before decisive UK GDP data, after British Prime Minister David Cameron prepared markets with predictions of a “good” number for the economy. Coupled with less-than-dovish comments coming from the Bank of England earlier this week, sterling has surged against the euro and US dollar, and has reached five-week highs against the under-fire Japanese yen. The euro is also struggling in the wake of dire-looking eurozone PMI surveys which indicated that the economic downturn in Europe is intensifying. Meanwhile, the Federal Reserve reminded investors that it plans to maintain its dollar-diluting monetary policy for some time yet. The Fed ended its two-day policy meeting without publishing any real surprises about the US economy to leave the US dollar a little light on safe haven support. The New Zealand Australian dollars have gained sharply after the Reserve Bank of New Zealand’s latest decision on interest rates gave the two currencies a bit more of a hawkish touch which they have been lacking recently.
PMI surveys covering activity in Europe’s manufacturing and services industries pointed to a deepening economic slowdown in the single currency area. Consequently, the euro remains on very shaky ground, having already faced pressure this week as worries mount over Spain’s indecisive fiscal policy that is threatening to unravel the European Central Bank’s efforts to control the debt crisis.
The British pound climbed dramatically and its gains may accelerate following crucial third quarter UK growth estimates. Comments from key British policymakers this week have given markets the impression that Britain’s likely return to growth could be a sustainable one, which should then persuade the Bank of England to turn off its monetary easing taps. In his speech, UK Prime Minister David Cameron surprisingly hinted at a “good” result for the economy. His comments came just a day after Bank of England Governor Mervyn King encouraged investors not to expect the central bank to keep printing money. Sterling surged by as much as one per cent against the euro and is now hovering near one-week highs.
The US dollar is in for a slow start after the Federal Reserve promised to keep up its $40 billion-a-month stimulus programme for the US economy until unemployment reaches a comfortable level. The Fed also reiterated its pledge to keep borrowing rates close to zero for at least three more years which seems to have reminded investors that the US dollar makes a perfect candidate as a funding currency to place risky bets.