CAUSE AND EFFECT

Sterling continues to struggle. I’m pretty sure you may have read that more often than not recently, but it remains the case. The cause continues to be stagnant growth, downgraded forecasts and the risk of further stimulus measures hanging in the air. The effect is a stronger euro and dollar than we might have expected, given recent negative events with both currencies. With all the uncertainty surrounding the eurozone and the political posturing of the US, the upshot is that the pairings remain largely where they have sat for much of the last month.

Pound Sterling – UK Markets

Sterling fell against the dollar yesterday, closing at 1.6183. We appear to have recovered some ground in early trading however, to sit currently at 1.6271 at time of writing*. The pound tracked euro losses against the greenback yesterday, with the dollar running out the winner following jobless figures in the afternoon. As ever, sterling is continually hampered by a distinct lack of positive forecasts and mostly weak data. It simply doesn’t appear to have the legs to drive upwards when negativity elsewhere suggests that it should. Whilst the euro struggles, we see the GBP/EUR pairing largely static and appearing range bound between lows of 1.13 and highs of 1.15. The pairing currently trades at 1.1434*, with no real movement since yesterday’s close.

US Dollar – US Markets

Wall Street rallied on Thursday, following an unexpected decline in US jobless claims and better-than-forecast corporate earnings. This caused the dollar to recover some ground, mostly against the pound. It’s good news for the greenback considering the recent humiliation of being downgraded by Standard and Poor’s following the political jostling to raise the debt ceiling. We may also have expected some vulnerability in reaction to the decision to keep interest rates on hold at near zero per cent until 2013. So far, however, the dollar has rallied if anything. How much of this is a direct benefit of the euro’s travails remains to be seen, but for now the currency holds its ground.

Euro – European Markets

There is no question that concerns over the debt situation in the zone are likely to escalate. It is very much a ‘take-each-day-as-it-comes’ scenario with the euro – it could crumble at any time. It does appear, however, that the real problems it faces are being masked somewhat by the struggle elsewhere. Were we not in global strife, we may well be seeing a euro falling through the floor but, of course, without the global crisis it probably wouldn’t be in this mess. There, possibly, lies the crux of the matter; we expect the euro to weaken due to its problems, but forget why it is in apparent dire straits in the first place. Against the dollar, rates are little changed. Current trading sees the pairing at 1.4252* with variation at a minimum. It is Friday, however, and we often see some excitement as we head toward the weekend close. The squaring off of weekly positions can result in some interesting movement in the afternoon, so do check with your broker if you are looking to trade a combination of EUR/USD/GBP. As mentioned, the euro is very bound in range against the pound. From lows of 1.13 to highs of 1.15, we have seen no breakout from these parameters in recent trading and I expect little change from that position going forward.

Other Currencies – Highlights

The commodities-backed currencies remain a good buy at present. The AUD has lost around 7% in value in a week’s trading, the ZAR about the same percentage. Whilst the NZD remains strong, that too has lost significant value in recent trading. Should you be looking to buy into these currencies and your timeframe is limited, now would appear to be a very good time. *Rates correct at time of writing 1030am