Market Report

The threat of inflation seems to be falling off globally at the moment as falling oil prices and slowing economic growth begin to impact. These factors have seen inflation in the Euro zone fall below the 2% ECB ceiling and the Dow Jones Industrial average rise to within a whisker of its all time closing high.

The Dollar strengthened against the Euro yesterday after speculation that a government report will show the Federal Reserve's preferred inflation measures rose last month. The prospect of a reduction in interest rates seems to be easing with inflation still a concern; it seems now that it will be next year before we see a reduction in interest rates in the United States, and the USD keeps a positive tone as a result.

Sterling has weakened against the Dollar and the Euro for the first time in three weeks with the prospect of an interest rate hike becoming less likely. Inflation worries seem to be abating in the near term and sterling looks to remain under pressure for now.

New Zealand's dollar fell to a two- week low after a government report showed economic growth slowed in the second quarter, making another interest-rate increase by the central bank less likely.

VC

The Euro strengthened against most currencies yesterday on the back of speculation the ECB will raise interest rates at least once more this year. GBP/EUR has fallen by over 1% in the past 48 hours.

Today sees US GDP figures and Jobless claims at 13:30 this afternoon. Both of these figures are expected to have some impact on the currency markets, especially after the dollar strength we have seen over the past 48 hours.

We may see a backlash in Poland after a secret recording was broadcast of a senior official negotiating job offers with an opposition MP if she joined the coalition government. We may see the currency effected because of this.

A special mention to the only left back I can recall who has scored a hat trick - Matthew Lockwood of Leyton Orient. He achieved the feat in 11 minutes! If anyone knows of another left back that has done this please email info@axiafx.com!

DE

Yesterday afternoon the USD bounced relatively hard for a quiet day on the release of consumer confidence data that came in above expectations. As highlighted here on this page in recent weeks there is an extreme negative sentiment towards the USD and US data at the moment, and the risk in my mind from data will continue to be to the USD topside.

GBP sold off moderately yesterday as political infighting continued to weigh, despite the suggestion from MPC member John Gieve that rates will need to rise to 5.00% to quell inflation concerns. This mornings GDP release will be a focus for the GBP market however as it is a final reading there is little chance of a surprise.

This afternoon sees new home sale data from the US which will be closely watched for signs of life in the US housing market that has been so mooted over the last months. The other US release of note is the notoriously volatile Durable goods number which is also likely to get a reaction.

Other points of note from Asia are the statement from a Bank of Japan member that the upcoming Tankan report of business activity is expected to be strong, increasing the case for further rate rises in Japan. The trade shenanigans between the US and china are also coming to a fore as the Chinese Yuan strengthened to its highest level since the peg was removed on the back of the two US senators (Schumer and Graham) who have been threatening trade sanctions against China for keeping its currency artificially weak agreed to allow time for negotiations between Treasury secretary Paulson and the Chinese authorities to facilitate a stronger Yuan.

Axia trading

GBP - USD 1.8850
GBP - EUR 1.4850

DH

Sterling held steady near a recent three-week peak against the dollar and 15-month high versus the Euro on Tuesday, due to speculation on the UK's interest rate outlook. The pound was bolstered on Monday by a report in the Financial Times saying Bank of England Deputy Governor Sir John Gieve gave serious thought to another interest rate rise at this month's policy meeting. This morning however there has been modest GBP weakness on the back of the political wranglings of the Blair Brown saga, though this time the Blair is not Tony. Gordon Brown on Monday, although he claimed he regretted that his disagreements with Mr Blair in the past have distracted the party and the government, various news agencies are claiming that Mrs. Blair has said "WELL that's a Lie" creating more political uncertainty!

With no key data due Today for the UK, investors are looking ahead to final GDP numbers for the second quarter on Wednesday and a house price survey for September by mortgage lender Nationwide on Thursday.

In the US Ex Fed governor Paul Volcker has expressed his concern over the level of inflation in the US and the pressure that the Fed is under not to raise rates to combat the threat. In the UK my personal opinion is that we are facing the exact opposite dilemma with not enough emphasis being placed on the impact on the consumer of raising rates to combat the threat of inflation.

The Main European story of the day, outside of the moderately lower release of Ifo German business sentiment, is the European Parliaments Foreign affairs committee approving bids by Bulgaria and Romania to join the EU in 2007. The panel recommended that the EP should approve the countries' accession treaties on 11th April, ahead of the planned sealing of the documents on the 25th April.

DH

As we move into the last week in September, we do so with sentiment firmly positive towards GBP. The weekend press has continued to moot the possibility of a UK rate hike, some as early as next month (though November still remains the bookies favourite!). The threat of inflation persists despite the recent drop in the oil price (as political and supply issues have calmed), and this weeks housing data from the UK is likely to show a further rise, adding to the hawkish sentiment.

Whilst this sentiment persists it is difficult to argue for GBPUSD lower, however I still firmly believe that in the months to come we will look back at these levels and realise what great levels we are currently seeing for selling GBP. In the same light the sentiment towards the US is just about as bad as it can get on the data front and bar any shocks there is certainly room for the US to outperform expectations.

Japan is also very likely to outperform in my opinion over the next few weeks with speculative positioning the main driver and any pick up in sentiment towards the global economy and in particular signs of doubt over the US slowdown will benefit the JPY.

In the minors, concerns of political turmoil in Hungary and Poland may well see the Forint and Zloty slide further as a reduction in their budget deficits in the near term looks less likely.

Have a great week.

VC

Archived Market Reports