Raphaels Bank Morning Commentary 12th September

publication date: Sep 12, 2008

Australian Dollar 2.1869                   Norwegian Krone 10.175                    South African Rand 14.325
     
Canadian Dollar 1.8902                     New Zealand Dollar  2.6884               Arab Emirates Dirham  6.4842
  
Euro 1.2550                                       Swedish Krona  11.937                      United States Dollar 1.7653
  
Japanese Yen  189.79                      Swiss Franc 2.0052                            Hong Kong Dollar 13.768
  
UK Continues its descent as BOE prophesies stalling growth.
The Dollar yesterday continued to be smiled upon by global markets as a massive bout of risk aversion prompted a strengthening of the currency to a yearly high against the Euro of 1.3916.  The Yen also strengthened exponentially against all major currencies as investors and traders made short term bets that carry trades and emerging markets investments would be cut back as news pertaining to global recession continues to cast a shadow over the markets.  As mentioned in previous reports, the unwinding of these trades inevitably leads back to the Dollar which is now seeing a huge surge as US Treasuries in particular are sought out for safety.  Today?s slide on all currencies paired against the Dollar has only built upon what was prompted yesterday by the European Central Bank as it tolled the bell of global recession pronouncing that several of its members and non-members faced a definite prospect of negative growth next year.  As long as this feeling continues, regardless of short-term scheduled US and Eurozone data, there is virtually no likelihood that the Dollar will give back its gains which have driven most major pairs for the last several weeks now.

Yesterday also saw US Unemployment Claims and the monthly Trade Balance figure, both which were more negative than expected.  The forex market did not respond though owing to the fact that the world and especially the Europeans are starting to look far more miserable than the petrol obsessed pre-election hyped up Yanks.  The Bank of England was also out in force yesterday.  In an address before a Parliamentary Committee, Mervyn King and his cronies were keen to confuse spectators with a whole varied mix of obfuscations over lending to Retail Banks and comments about the economy in general.  Whilst King was keen to impress that more efforts would soon be rolled out to unfreeze money markets by assisting Banks with short-term liquidity problems he also added that these measures would not extend to the long-term and any decision on this would be left to an exhausted and confused looking Gordon Brown.  David Blanchflower, MPC member also added into the mix some very intense comments pertaining to a further drop in UK growth in the next year before King then interjected through gritted teeth that growth is likely to recover towards the end of next year.  Following this meeting, Sterling was given some support versus the Euro, aided largely by the rising Dollar.  GBP/USD on the other hand could only succumb to the EUR/USD juggernaut and, whilst GBP/EUR moved towards 1.26, it plumbed the low 1.75 region.

Today sees US Retail Sales and its Producer Price Index.  There is potential that expectations for low figures from this data could pull back EUR/USD to the 1.40 level, particularly in combination with a hike in oil futures in expectation of Hurricane activity.  GBP/USD may well then see a small recovery this morning in its mid 1.70 range whilst GBP/EUR will see pressure from the upside as the Euro strengthens slightly.