Daily Currency report

From Peter-John Theuninck, Currency Analyst at Baydonhillfx

Britain secured two historic gold medals yesterday with our first gold came from an dominant performance by Helen Glover and Heather Stanning who won Britain’s first ever women’s gold in rowing, our second gold came from the men’s road cycling time trails where Bradley Wiggins took the field by storm to win the event with Chris Froome putting in a strong performance to claim the bronze. Bradley Wiggins is now the most decorated British Olympian of all time with 6 medals and although there was plenty to celebrate on the sporting front, the Pound had a less than stellar trading day.

The focus for the day was certainly on the US Federal Reserve Bank monetary policy decision where expectations were for a signal that additional stimulus measures would soon be introduced. Ahead of the meeting the Dollar was put under pressure despite weaker data in Europe as manufacturing activity in Germany and France contracted further during July. This move higher by the Euro versus the Dollar allowed the single currency to make gains against other currencies as well; versus the Pound the Euro gained nearly half a percent.

The European Central Bank (ECB) is meeting today and although no changes are expected to monetary policy but ECB President Draghi is likely to be under a lot of pressure during his post meeting press conference. Draghi has in recent weeks come out in strong support of protecting the Euro and any signs that his determination has faded will likely see the Euro being punished by the market.

Sterling’s troubles were not solely based on the strengthening of the Euro as economic data put the UK currency very much on the back foot ahead of the Bank of England’s monetary policy meeting today. PMI Manufacturing data showed that the UK economy was slowing further and, as some market participants have suggested, perhaps placing Britain deeper into a technical recession. Either way the expectations that the Bank of England will take a dovish position and express ongoing concerns for UK economic stability has seen the Pound being sold off, the data also heightened expectations of a possible interest rate cut before the end of the year.

The US Federal Reserve Bank stopped short of signalling that any new stimulus would be introduced even though they suggested further bond buying could be in store if the US economic recovery continues to lose momentum. Fed Chairman Bernanke was slightly more dovish saying the economy had “decelerated somewhat” as opposed to his previous description in June where he said the US economy was “expanding moderately”. The event didn’t do the Dollar any harm though as the US currency appreciated sharply on the back of the announcement and continues to see a bit of ongoing safe haven demand ahead of the ECB and BoE meetings today.

US weekly jobless claims are being released today which is the second of this week’s US employment data, the ADP employment report yesterday showed more private sector jobs were created in July and if today’s data is positive there is no reason why the Dollar shouldn’t maintain an upward trend.