The US Dollar roars back to life.
The US dollar staged a dramatic recovery on Thursday / Friday in response to a rebound in US pending home sales, continued lower crude oil prices and more importantly a market move out of the Euro.
Both the European Central Bank and Bank of England kept interest rates on hold at 4.25% & 5.0% respectively and maintained the interest rate yield differentials between the pair. However, ECB President Jean Claude Trichet acknowledged that European growth was weakening and the flow of data was worsening and although Trichet confirmed that inflation is still the ECB’S major worry, most market commentators have taken it as a cue for a cap on any further interest rate rises. In fact some suggested last month’s hike was overdone. Before Trichet’s speech EURUSD was trading at 1.5490 and already down from Monday’s opening 1.562+ before the Greenback mopped up the Euro sellers with the dollar pulling back to a 1.5140 on Friday morning. On Cable, the dollar retraced as high as 1.9254 / 0.5193 on Friday from just shy of 1.96 / 0.5102 on Thursday am and also made significant gains against the Swiss Franc from just south of 1.06 to 1.0744. Sterling also gained on the week against the euro from 1.2610 to Friday morning’s 1.2719 and within sight of 3 month highs.
The general economic data released from the UK and Europe continue’s to disappoint as the UK’s manufacturing PMI fell along with house prices with the Halifax reporting a 1.7% drop in prices in July and 8.8% down on the year. Construction PMI followed the gloom in the housing sector with a drop to a record low of 36.7, whilst on a positive note services recorded a rise to 47.4. The IMF downgraded the UK’s growth prospects to 1.4% 2008 and 1.1% next year and ominously warned “it wouldn’t take much of a shock” for growth to turn negative. UK Inflation numbers are due to be released next week and are likely to once again confirm the low growth / higher inflationary outlook for the UK.
On a upbeat note, the cost of a barrel of oil has declined further and as a hedge against the US dollar has fallen to $115.05 Brent & $118.05 Nymex future. In response to lower commodity prices the Kiwi & Aussie dollars have continued their descent as speculation mounts that both will have to cut interest rates. Both have fallen against their lower yielding counterparts as carry trades unwind and down to 2.74 GBP/NZD and 1.4243 USD/NZD. Against the Aussie, Sterling is up to 2.1578 and USD/AUD 1.1218. The South African Rand gave back some of its recent gains down to 14.75 from 14.15 against the pound.
Have a great weekend. Premiership football almost with us again. Come on you reds!