Foreign Exchange Daily Market Commentary – UKForex – 22/10/2010

Foreign Exchange Daily Market Commentary – UKForex – 22/10/2010

United States Dollar: “The dollar strengthened slightly yesterday against most other major currencies, and firmed on a trade weighted basis (US Dollar Index) by 0.6%. There is little out in the way of data today, and trading is likely to be driven by positioning ahead of the Group of 20 Meetings in South Korea this weekend. The agenda is most definitely to contain discussion surrounding the recent hype about “currency wars” and ways that governments can work together to stop the rise of protectionism, policy that aims to boost growth at the expense of other economies. In the UK gilt yields fell on the back of an increased expectation that the Bank of England will resume quantitative easing. In a speech on Thursday George Osborne stated that “…there is of course the freedom for the Bank of England to deploy monetary tools as well.” GBP/USD fell from levels above 1.5840 down to 1.5680 where we open this morning. ”

– We expect a range today in the GBP/USD rate of 1.5600 to 1.5800

Euro: The Euro continues to hold ground against most currencies, and continues to be an asset of choice for yield hunters. An article out this morning from Bloomberg draws attention to the falling cost of insurance on Greek government debt (referring to credit default swaps). Insurance costs for 10 year bonds fell to 565 basis points (or 565,000 Euros for every 10 million Euros of bonds). In may the cost was closer to 665 basis points, highlighting the improved sentiment towards Greek assets. The continuation of easing risks is likely to support the Euro in the short and medium term. Against the dollar the Euro rose from 1.3880 to levels just above 1.4040 yesterday before dropping back to 1.3880 levels this morning. The Pound hasn’t done so well against the Euro of late, on the back of further QE from the UK and on improved sentiment in the EU. GBP/EUR dropped to 1.1225 yesterday, from a day’s high of 1.1398. We open closer to levels around 1.1300 this morning.

– We expect a range today in the GBP/EUR rate of 1.1240 to 1.1360

Aussie and Kiwi Dollars: The Aussie gave back some ground yesterday, and after initially rising to levels above 0.9880 it fell to a low of 0.9743. Comments from US Treasury Secretary Tim Geithner, which alluded to further Asian currency strength, drove the Aussie up from the lows to levels just shy of 0.9860, but in keeping with the volatile nature of trading in the Aussie, these gains were reversed this morning and we open at 0.9760 levels. The Kiwi also fell from levels above 0.7530 down to 0.7450 where we open this morning. Ahead of the G20 meeting in South Korea, many analysts will be looking for rhetoric pertaining to Chinese currency policy, which is likely to affect trading in the Antipodeans.

– We expect a range today in the GBP/AUD rate of 1.5900 to 1.6100

– We expect a range today in the GBP/NZD rate of 2.0900 to 2.1100

Data Releases:

  • AUD: No data of note – G20 meetings over weekend
  • EUR: No data of note – G20 meetings over weekend
  • GBP: No data of note – G20 meetings over weekend
  • NZD: No data of note – G20 meetings over weekend
  • USD: No data of note – G20 meetings over weekend

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