Raphaels Bank Morning Commentary 10th September

publication date: Sep 10, 2008

Australian Dollar 2.1892         Norwegian Krone 10.024         South African Rand 14.184
     
Canadian Dollar 1.8844          New Zealand Dollar  2.6335      Arab Emirates Dirham  6.4916
  
Euro 1.2468                            Swedish Krona  11.867             United States Dollar 1.7672
  
Japanese Yen  189.42           Swiss Franc 1.9867                   Hong Kong Dollar 13.780
 

Sterling pairs settled as data is reduced to a trickle.
Yesterday was an extremely languid day on the foreign exchange markets.  UK Manufacturing Production, out at a worse than expected -0.2%, in combination with a shocking RICS House Price Balance was shrugged off by major Sterling pairs as EUR/USD gains mitigated any possible further depreciation on GBP/USD and traders held fire on a GBP/EUR that is looking pretty even at present.  In all reality, bearing the events of the past several weeks in mind, it would take some more devastating rhetoric or macro-economic news to continue to pull an exhausted Sterling any further into the mire.  As the Chancellor of the Exchequer so kindly pre-empted any possible combination of horrendous economic data for the UK over the next year, it now seems like an awful lot of bad news is priced into the market.  Watching for a bounce on Sterling pairs is now the order of the day as any signs that investors and traders have gone too far selling the Pound could bring its principal rates sharply back up.

As mentioned, EUR/USD pushing back up to the 1.42 zone yesterday gave GBP/USD some good support.  This was largely precipitated by a really grimy Pending Home Sales figure shaking the confidence of US investors at a decidedly unhealthy -3.2%.  What we must remember though is that, even if terrible news continues to pour out into the markets regarding the US economy, as long as there is still the belief that the global economy is also slowing, the US Dollar will continue to strengthen as cash is converted back into the currency from emerging markets and high-yielding currencies.  The fact that no-one believes the highly rhetorical inflation mandate from the European Central Bank anymore also bodes well for the Dollar as a safe haven in times of uncertainty – it truly remains the ‘best of a bad lot’.

Today, if you’re reading this report then you can breathe a sigh of relief safe in the knowledge that the crazy European boffins at CERN haven’t yet destroyed the world and its wonderful forex markets with their Hadron Collider.  Reportedly the machine carried some likelihood of creating an all consuming black hole when it was switched on earlier this morning, so when looking at Sterling just bear the lack of global destruction in mind.  Elsewhere, the UK Trade Balance emerges this morning and is likely to mirror a slight rise in exports as imports come under continued strain.  This data is however pretty unlikely to effect the markets as its relevance to growth and inflation is fairly hard to interpret.  Aside from this a quiet day is expected which will likely see GBP/USD and GBP/EUR drift up slightly.