USD / GBP
• Sterling holds onto recent gains despite interest rate cut by BoE
• Dollar makes more gains against majors as equity markets plunge
• Euro weakens as ECB cut interest rates by 50 basis points
• Nervous markets are bracing for today’s pivotal US jobs data
• Gold makes gains on safe haven moves by worries investors
US Dollar:
The dollar gained against the euro and pound yesterday, taking advantage
of interest rate cuts in both economic areas. The dollar took two cents of the euro to hit an intraday
high of $1.2479, and two cents off sterling to hit $1.4039. The dollar was also well supported as a dramatic
day in equity markets saw them plunge between 3% and 5%, with the Dow Jones giving up over 4%. The
dollar has started out in today’s morning session on the back foot, with wild swings against the buck on EUR/
USD and GBP/USD.
Today will remain volatile in the run up to the highly anticipated jobs data from the US
due at 13.30, with trading remaining thin in the run up to the data. With the spot light on the February US
nonfarm payrolls data, some dealers said that a bad showing could cause US share prices to fall, which in turn
would help the dollar. The stock falls could prompt US players to dump their assets held in foreign currencies
and bring them back to the US to make up for increasing equity losses at home. In that event, investors
would have to buy dollars, possibly pushing up the unit against currencies such as the euro, pound and yen.
Data 13.30: Nonfarm Payrolls –625k from –598k, Unemployment Rate expected 7.9% from 7.6%
& Average Hourly Earnings.
British Pound:
The pound rode out yesterdays volatile markets well, despite the Bank of England cutting interest
rates again by 50 basis points to 0.50%. The cut was widely expected by the markets so the cut has already
been built into sterling’s strength.
What was not as expected was the move to pump £75bn in newly created money into the British financial system as it adopted a “quantitative easing” policy, but it did not inspire too much confidence, with some seeing it as a last throw of the dice. The pound traded sideways against the euro, keeping in between a 1.12—1.13 range.
Cable did initially lose a cent in the run up to the rate cut but then pushed on through $1.41 and has broken through $1.42 this morning. The reason for the slight drop against the dollar yesterday was also caused by a rally in the greenback, as world stock markets dropped between 3% to 5% leading to dollar support. Cable will remain volatile today as we await crucial jobs data from the US. A very bad figure could lend to more dollar buying.
Data 09.00: PPI YoY expected 1.1% from 2.3% & Bank of England Housing equity Withdrawal expected –6.5B from –5.7B.
Euro:
The single currency lost ground against the dollar and sterling yesterday as a rate cut by the European Central
bank of 50 basis points to 1.50% dragged the single currency down.
The euro’s move against the dollar has been extremely volatile with nearly two cents lost yesterday to a low of $1.2479, but has made a dramatic recovery in this mornings trade, grabbing back a whopping two and a half cents to top $1.2724. The has been seen as dollar weakness, as markets are on tender hooks on the run up to today’s crucial jobs report from the US. The euro’s position against the pound was pretty stale, with both central banks in the UK
and Eurozone cutting rates respectively, cancelling out each other in the process. The euro has been under
pressure all week against the pound, which looks likely to be the play for today’s session.
General:
• Stock markets fell to their lowest level in twelve years yesterday, with the FTSE dropping 3.18%, the
Dow Jones giving up 4.09% and the DAX a whopping 5.02%.
• Spot gold is up to $934.30 per troy ounce as safe haven buying was seen by nervous investors.
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