Pound Pares Losses After Exaggerated Rally

The pound reverted its losing trend from last week’s end, specially versus the euro, as traders interpreted the winning streak as inadequate, as U.K. could be starting its first signs of economic recovery.

The pound has been facing extreme volatility as investors remain confused regarding the directions it may take in currency markets, considering the actual conjecture of the British financial scenario. Today, the pound rose specially versus the euro, as even if the U.K. posted negative growth numbers last week, analysts suggest that next quarter will bring back optimism towards the United Kingdom’s economy.

EUR/GBP traded at 0.9109 as of 21:45 GMT from a previous rate of 0.9235 yesterday.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to reply below.

Intervention Fears Set Brazilian Real Down

The Brazilian real, ranking among the best performers in currency markets this year with the Australian and New Zealand dollar, experienced another day of losses as the government may take further action to halt the current national currency rally.

The Brazilian real suffered another day of pessimism as speculations suggest that the national central bank could be ready to take further measures, after setting a tax for international capital inflows towards Brazilian equities markets last week, declining attractiveness for the real as fears that a good currency performance may be once synthetically halted by policy makers.

USD/BRL traded at 1.7205 as of 21:25 GMT from an opening rate of 1.7178 today.

If you want to comment on the Brazilian real’s recent action or have any questions regarding this currency, please, feel free to reply below.

Canadian Dollar Declines on Increasingly Negative Scenario

The Canadian currency, which even flirted with parity towards its U.S. counterpart, declined once again today reaching the lowest levels since the beginning of the month, as stocks and commodities impacted the loonie’s attractiveness in a negative way.

The loonie is being a victim of its national central bank policies since it stated that a strong currency could stop plans of an economic recovery in the country, influencing traders’ perception towards the Canadian currency as the Bank of Canada may intervene in its currency performance, automatically creating a negative sentiment, which gained force today as such declarations were repeated. A part from BOC comments regarding a strong loonie, financial markets did not provide support for Canada’s currency to grow, considering the nation’s exporter profile that lost attractiveness as stocks and commodities, specially the crude oil, underperformed today.

Global Equities in Tandem

1990-1995 DIVERSIFICATION WORKED

Global diversification proved effective in international portfolio investing due to:
Disparity in growth rates among major economies;
Brunt of world recession;
Relative inefficiencies in international portfolio investments (Emerging Markets Hysteria had yet to unfold)

* Fed raised rates 6 times for a total of 250 bps (Feb, Mar, Apr, May, Aug, Nov)
** The Peso Crisis and the Uprising in Chiapas
*** Capital Exodus from Mexico heightened triggered overall loss of confidence in Emerging Markets. This was compounded by the collapse of Barings Bank
GDP growth in industrialized nations: 1992= 2.1%, 1993= 1.4%, 1994= 3.3%, 1995=2.7%

1994-1996 TRANSITIONS

Broadening global recovery, US bail-out of Mexico, and the US entry into the "New Economy" paradigm all led to improved global market sentiment, which brought markets more in line.

GDP growth in industrialized nations: 1995= 2.7%, 1996= 3.2%

1997-2000 UNIFORMITY

As world economies begin to sustain their recoveries and cross-border protfolio flows accelerate, global stock markets move in tandem, making global diversification harder to achieve, simply based on geographical plays.

GDP growth in industrialized nations: 1997= 3.4%, 1998= 2.4%, 1999= 3.2% 2000 Forecast = 4.2%

ECB: Rates to Remain Steady by Angelo Airaghi [Guest Analyst]

The unemployment rate remains high in the U.S and in Europe and could rise further over the short term. However, new orders are improving and a turnaround might be near. The European Central Bank (ECB) meets this week in Venice (Italy). Rates should remain steady, although an exit strategy for next year could be ready.

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U.S.: Home prices to increase.

The U.S. economy is slowly moving out of the deep recession of the past two years, albeit the data remains volatile and unstable. Ups and downs are normal during turning points. Some sectors perform better than others, but an equilibrium should emerge as time passes by. The manufacturing industry, as an example, is performing again, since exports to major economies are increasing. In reality, the U.S. manufacturing ISM index declined to 52.6 in September, but it remains above the benchmark of 50 for the second straight month. In fact, 13 out of 18 industries registered some gains and improvements are broad-based among various economic sectors. The housing market remains nevertheless the leading force. Home inventories are declining and prices are beginning to rise. Current affordability and tax incentives are driving the market and the trend should continue in the coming months as well. However, the move could be subdued by the new saving mentality which focuses on reducing debt and improve personal finances.

The U.S Dollar is Still Under Pressure by Angelo Airaghi [Guest Analyst]

Household activity could remain moderate for some time, since unemployment and debt rate are high in the United States. Inflation is near the low, but prices are going to heat up again over the medium term.

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U.S.: household’s spending mild.

The U.S. dollar has resumed the downtrend against major currencies and the decline should continue over the medium term supported by fundamental and cyclical factors. In the United States, the public debt is increasing, the global economy is improving and interest rate differentials with key countries are widening. Inflation remains modest for now, it moved 0.2% in September, but it is expected to increase in the coming months, as the declined determined to the lack of request appears to be fading. As a result, commodity prices are preparing to move higher, while the speculation about an up-move of interest rates is mounting. In reality, it might take some time before rates will be on the move again in the U.S. and in Europe. Nonetheless, the domino’s effect set last week by the Reserve Bank of Australia appears to be in motion, along with cyclical and technical components that favors a weaker green back. With the economic growth in process, the U.S. dollar is no longer the safe haven currency. For the third straight month in a row, in September, the U.S. industrial production rose 0.7% (-0.3% expected) from August + 1.2%. Manufacturing production moved up 0.9% supported by autos and parts production, which rose 8.1% from 6.1% in August and 17.1% in July. However, output improved 0.5% excluding the auto components.

EUR & GBP Buoyed by Korman Tam

The dollar relinquished its earlier gains against the majors, slipping back beneath the1.50-level versus the euro and remaining mired past the 1.66-handle against the British pound. The Dow Jones and S&P 500 were higher on the session, while crude oil held steady above the $80 per barrel mark. The initial catalyst for the greenback’s reprieve was speculation overnight that China would soon mitigate its economic stimulus packages, tempering the shift to riskier assets.

There was a barrage of G7 economic reports released on Thursday. The US data included weekly jobless claims, the September leading economic indicators index and August monthly home prices. Weekly jobless claims unexpectedly crept higher to 531k from an upwardly revised 520k in the previous week. The August monthly home price index revealed further declines, down 0.3% versus a 0.3% increase in July and lower by 3.6% compared with a year earlier at -4.2%. Lastly, the September leading economic indicators index beat consensus estimates, climbing to 1.0% from a downwardly revised 0.4% from August.

USD Slumps on Blockbuster JPM Earnings by Korman Tam

The beleaguered dollar found no reprieve in the Wednesday session, extending its losses to fresh 14-month lows against the euro and Australian dollar to 1.4934 and 0.9156, respectively. A shift to riskier assets was triggered by a stronger than expected earnings report from JP Morgan Chase, prompting advances in the US equity bourses with the Dow Jones, Nasdaq and S&P 500 all gaining by more than 1.2% by afternoon trading. The Dow Jones edged higher toward the psychologically key 10,000-level, briefly breaching above it on an intra-day basis for the first time in a year.

The economic data released earlier in the session were largely mixed, consisting of retail sales, import prices, export prices and business inventories. The headline retail sales figure was better than estimated, albeit still declining by 1.5% for September versus a 2.7% from August. The excluding automobiles retail sales figure beat consensus estimates also, posting an increase of 0.5%, better than calls for a 0.2% increase from 1.1% a month earlier. The August business inventories figure revealed a 1.5% drop from a 1.0% decline in July.

CAD Slumps on BoC by Korman Tam

The dollar was mixed in the Tuesday session, climbing sharply higher against the Canadian dollar past the 1.05-figure while sliding versus the euro just shy of the 1.50-level. The US economic reports released earlier today were largely disappointing. The September housing starts figure missed consensus estimates for an increase to 610k units from 598k units, instead dropping to 590k units. The September building permits reading also disappointed, falling to 573k units versus 580k units a month earlier. Meanwhile, the headline PPI figures for September were weaker than anticipated, declining by 0.6% m/m and 4.8% y/y. The core PPI readings also missed forecasts, declining by 0.1% m/m and edging up by 1.8% on an annualized basis.

Dollar Tumbles to Fresh 14-mth Lows by Korman Tam

The dollar sold off sharply across the board in the Wednesday session despite a dearth of US economic data earlier in the morning. The greenback plunged to a fresh 14-month low against the euro past the psychologically key 1.50-level to 1.5040, a new 15-month low versus the Swiss franc at 1.0038 and 14-month low against the Australian dollar at 0.9326. A shift into riskier assets continues to be detrimental for the US dollars as traders price in improving conditions in the global economy. Crude oil prices climbed higher today, rallying above the $81 per barrel level by afternoon trading.

The Fed’s Beige Book provided an optimistic assessment of the US economy, saying conditions have stabilized or improved modestly in many sectors since its last report. The Fed said that reports of gains in economic activity outnumber the declines, though the improvements are small and scattered. However, it tempered its assessment by saying adding that labor markets are typically characterized as weak or mixed, albeit with pockets of improvement.