Market News & Insights
9 August 2013

USD Remains Weak, But for How Long?

EUR/USD 1.3377
GBP/USD 1.5542
GBP/EUR 1.1618 (0.8610)
EUR/CHF 1.2309
GBP/CHF 1.4300
GBP/AUD 1.6989

The USD faced further selling pressure, the greenback was sold following positive risk sentiment resulting in better than expected Chinese trade figures and rallying equity markets posting their first gains in three days. All this was bad news for dollar as it reached highs of 1.3400 against the EUR and based firmly above the 1.5500 level versus the pound.

The rise in EURUSD appears more linked to USD selling than anything massively EUR positive, we have discussed the strong performance of Germany this week but the periphery continues to struggle. Unemployment data released from Greece yesterday saw the jobless rate rise to a fresh all time high at 27.6%. It is difficult to see Greece exiting this slump as they are crippled by their massive debt burden and related austerity measures. If I have said it once I have said it a thousand times, we have not seen the last of bad news from Greece.

And yet the EUR remains resilient, the ECB stand by ready to act should the region show further deterioration or the single currency need support, for now however investors appear comfortable with the ECB’s promise to do whatever it takes to maintain the EUR and as such demand remains strong for higher yielding peripheral debt particularly from Portugal Greece and Spain.

The USD index, a benchmark for greenback strength against its major counterparts has declined for 5 consecutive days putting in its worst performance since January 2012. Recent USD weakness lacks justification in conventional analysis. The USD is usually under pressure as equity markets are outperforming but we have seen rather meandering markets this week. Some may say a push back in taper timing could see USD selling but data this week from the US and Fed commentary has been supportive of September tapering.

Any taper remains some 5-6 weeks away but we need to see some further negative news for the USD to continue its bearish trend. We have seen a lot of corporates actively buying USD at these level, we feel a reverse is on the cards but we remain weary of thin liquidity and summer markets.

The pound had a quieter day yesterday as markets absorbed Carney’s forward guidance. GBPUSD rallied higher again driven more by USD selling but EURGBP maintained a very narrow range between .8600 and .8615 for much of the day. Trade data is due out this morning which may provide the pound with the additional push required to break back below .8600. We are expecting the trade data to improve soon in line with improvements in industrial and manufacturing figures.