China relaxes control over the renminbi
Elsewhere yesterday, we saw significant developments from the People’s Bank of China (PBoC) as the Governor announced the central bank would basically end “normal foreign-exchange market intervention”. For most of its history, the Chinese renminbi has been pegged to the US dollar. Although that fixed rate has been altered a handful of times, the Chinese central bank has always intervened in order to control the value of the currency. Yesterday morning it was announced that the PBoC will remove itself from day-to-day interventions, allowing the currency to float on the foreign exchange market, with the trading range being widened in ‘an orderly way’ (i.e. a gradual floatation with no specified time frame). It is too early to forecast what this will do to the value of the currency, but it promises to be an interesting situation and one to keep an eye on. In other news we saw the Canadian dollar and Russian rouble lose ground against the majority of their most-traded peers as futures of crude oil, the nations’ biggest exports, hit the lowest price in 5 months. The South African rand also weakened, halting 4-day gains following the announcement from a state-owned power utility company that there is a significant risk of blackouts over coming months. Today is a quiet day data-wise, but tonight the Governor of the Bank of Canada will give a speech. Get in touch with your trader for a live rate.
The Italian elections continue to worry markets | Smart Daily Currency Note
GBP/EUR – 1.1532
GBP/USD – 1.5114
EUR/GBP – 0.8665
EUR/USD – 1.3082
GBP/AED – 5.5514
GBP/AUD – 1.4786
GBP/CAD – 1.5492
GBP/CHF – 1.4077
GBP/CNY – 9.47
GBP/HKD – 11.7152
GBP/HUF – 341.49
GBP/INR – 81.03
GBP/JPY – 138.50
GBP/NZD – 1.8304
GBP/RUB – 46.16
GBP/SEK – 9.7372
GBP/ZAR – 13.3356
Sterling had a mixed day yesterday – starting off on the front foot reaching highs of 1.1650 against the euro and 1.5220 against the US dollar before losing ground later in the day. Sterling struggled after one of the Monetary Policy Committee (MPC) members from the Bank of England (BoE) suggested he was open to more monetary easing and furthermore, that the prospect of negative interest rates had been raised at central bank meetings. Furthermore, realised sales data from the Confederation of British Industry (CBI) came out lower than expected. Out today we have the second estimate of the UK’s fourth quarter GDP which is expected to show a contraction of 0.3%, the same as the first estimate. Moreover, more MPC members will be speaking today, and following yesterday’s volatility, the market will pay close attention to what they have to say. Call now for the latest updates on sterling.
It has been a turbulent few days for the euro, news of the inconclusive Italian election yesterday drove the euro to a seven week low against the dollar – whilst weakening by three cents against sterling. The damage was not as widespread as first feared however, as traders became confident that the European Central Bank (ECB) would intervene to limit the fallout, and the euro strengthened in the afternoon. Today is likely to be just as volatile with two important events. Firstly, we expect an Italian 10 Year Bond auction this morning – a key way for governments to borrow money and high yields mean high borrowing costs for the Italian Government. Secondly, in the afternoon the ECB President is speaking in Germany, we traditionally see a great deal of volatility during his speeches as markets look for hints as to future monetary policy. Get in touch now for the latest news and rates.
The US dollar generally performed well yesterday, strengthening against the majority of its currency partners with Consumer Confidence figures and New Home Sales data (rising in January to the highest since 2008) both coming out much better than expected. Along with this, the Federal Reserve Chairman backed the central bank’s current stimulus program, saying that they will support the asset purchases with “little risk of inflation or asset-price bubbles” causing the dollar to strengthen further. In the testimony he stated that “We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery.” Although he also warned that the automatic federal budget cuts in line to begin 1st of March will add a “significant” burden to the economy if lawmakers are unable to avert from the reductions. Today we will see Core Durable Goods orders along with the second part of the Chairman of the Federal Bank’s “congressional testimony” on monetary policy.
Elsewhere, the Canadian dollar fell to a eight month low versus the US dollar following better than expected data out of the US and the comments from the Chairman of the Federal Bank. The commodity backed currencies struggled in general yesterday whilst the Japanese yen prospered due to risk aversion driving the markets and traders seeking safer havens for their money. The Russian rouble was one of the worst performers yesterday after GDP data released showed that the economy had contracted by 0.3%. Call in now for a market update and a live quote.
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EURO/GBP – 1.196
US$/GBP – 1.474
CHF/GBP – 1.634
CAN$/GBP – 1.507
AUS$/GBP – 1.678
Sterling started yesterday strongly, rising to a 5 ½ week high against the US dollar of $1.4925/ £1 in early trading, but fell in late trading as traders became anxious over the effect of today’s budget. The pound strengthened after the People’s Bank of China announced overnight on Sunday that it would proceed with reform of the exchange rate ‘Peg’ (i.e. fixed rate) between the Chinese yuan and US dollar. In addition, data showed that house prices in London rose by 2.2% over the last month. This drove risk appetite and news on the yuan is expected to have a positive effect on US manufacturing, as Chinese goods become less competitive. Despite this, the key event this week is today’s emergency budget – the first of the new Coalition government. There is some anxiety over the pace at which the budget will seek to cut the deficit, as if it is too aggressive, growth could be stifled, whereas if the cuts are too lenient the deficit will not be addressed and the markets will lose confidence. If you have any requirements over the next few weeks – call in as soon as possible, because the pound could conceivably go either way against the US dollar and euro. It all depends on how the market reacts to the announcement.
In the Euro zone, there was no data out yesterday of any real importance. ECB Bank President Jean-Claude Trichet addressed the European Parliament. Probably the most interesting piece of information released yesterday was a report by Citigroup that amended their outlook for the euro from ‘negative’ to ‘neutral’ as the single currency closed above an important 2008 low of $1.2330/ 1 – signalling an important ‘technical’ recovery. Out today, we have data on the German business climate that is expected to show a small decline following the debt crisis. Get in touch now for a live exchange rate.
In the US, the big news yesterday was the reaction to China’s move to revalue their currency Peg against the US dollar. Despite an initial drop against the euro and sterling, many are expecting the US dollar to strengthen following the move by China. The revaluation opens the door for US goods to regain some price competition against Chinese goods, which they have lacked since 2005. This should aid the US recovery. There is a lot of volatility likely tomorrow with the UK budget data – call in now to ensure you don’t lose money.
Elsewhere, overnight the NZ and Aus dollar declined on concerns that funding trouble at European banks would temper growth. In addition, the two currencies fell the most against the Japanese yen since December 2008 over fears that the Chinese central bank would intervene to limit gains after the currency peg was eased. Get in touch now to avoid missing out.
Exchange rates change every second – call Smart Currency Exchange for a live up-to-the-minute quote on our Freephone number: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or fill out our online quote form at: SmartCurrencyExchange.com/quote.aspx