It was pretty much a story of range-bound trading for the US Dollar, Sterling and Euro this week as similar news flows maintained the status quo. Consumer and business confidence are continuing to drop in the UK and Europe but there was a surprise rebound in sentiment in the US. In Europe consumer confidence fell to -20 from -17 and the services, industry, retail and construction indicators headed south. In the UK, consumer confidence dipped to -39 and house prices according to the Nationwide fell at the fastest rate ever recorded. The number of new mortgage approvals fell to a new record low of 36,000 and consumer credit fell to £0.8billion which was down a massive £0.6billion from the previous month. Almost everywhere consumers and business are facing higher energy costs and for consumers, disposable incomes are being eaten up by higher borrowing costs being passed on from commercial banks as they seek to restore their balance sheets as the losses from the American sub-prime mortgage market continue to mount. With British Gas this week announcing a staggering 35% increase in gas prices due to higher wholesale costs, the worst of the current combined storm of credit crunch, rapidly rising energy costs and higher inflation is still to be felt. The high point remains further downward pressure albeit inconsequential in pump prices at present is oil which has fallen back to around $123 per barrel this week and paradoxically July recorded the biggest ever one month drop in commodity prices in 28 years in July. The fall in commodities will be welcomed by Central Banks and assuming that the drop off continues will eventually give some respite to consumers.
Cable traded up to 1.9940 before giving up its gains as oil came off, and Euro dollar just shy of 1.58 before succumbing down to 1.5569 on Friday morning….ahead of the all important non-farm payrolls release Friday PM. Sterling peaked at around 1.2740 against the Euro whilst “troughing” at 1.2610 All eyes next week on the Bank of England and European Central Bank as they announce their latest interest rate decisions. There would likely be some volatility on GBPEUR ahead of both of these key announcements on Thursday lunchtime.
The interest rate outlook is effecting commodity driven currencies as The Reserve Bank of New Zealand Cut rates last week down to 8%. Speculation is mounting that the Australians will do the same as both countries appear to be on the verge of recession. Against Sterling the Aussie has dropped from 2.07++ to 2.11++ this week, the Kiwi from 2.67 to 2.7150 and significantly the South African Rand appears to have broken out of its trading range 15.30++ to 14.4280 as expectation increases that the central bank will increase the base rate from its already lofty 12%. The global search for yield could be significant in pushing the Rand to new period highs going forward.
Have a great weekend. Football season kicks off in a couple of weeks. COME ON YOU REDS!