FX Market Summary 09-11-2013: Sterling out-performs again

Risk appetite generally improved following President Obama’s speech Tuesday night as he confirmed that he was no longer looking for Senate approval for a military strike on Syria at this stage. He would look to pursue diplomatic channels in order to put chemical weapons under international control.

The yen weakened following the speech and USD/JPY was able to push above the 100.50 level with the Swiss franc also generally weaker. There was further optimism surrounding the near-term Chinese economic outlook which also bolstered risk conditions and AUD/USD held generally firm near 0.93.

The dollar was also still unable to gain any traction against European currencies. The US currency was still hampered by the fact that markets had already moved to price-in Federal Reserve tapering at the September meeting. Overall confidence in the economic outlook and the tapering prospects remained cloudy following the payroll data and this continued to curb dollar buying interest as benchmark US bond yields edged slightly lower.

Immediate tensions surrounding the Italian political outlook eased with a Senate panel again delaying a vote on whether to evict former Prime Minister Berlusconi. A further meeting is scheduled for Thursday and overall tensions are liable to increase again. The German Finance Minister continued to insist against the use of Eurobonds as tensions increased ahead of the Federal election due in 10 days time, reinforcing underlying Euro-area stresses.

The Euro overall continued to prove resilient during the day with no attack on support in the 1.3225 area and solid buying support on dips. There was fresh buying interest in New York with EUR/USD testing the longer-term 1.3300 resistance area while USD/JPY retreated back below 100.

The UK economic data was again stronger than expected, maintaining the trend seen over the past few weeks. There was a further sharp decline in the unemployment claimant count of 32,600 following a revised fall of over 36,000 the previous month. There was also a decline in the unemployment rate to 7.7% from 7.8% previously, reinforcing market expectations that the Bank of England would raise interest rates earlier than assumed in its forward guidance.

Sterling pushed sharply higher with GBP/USD challenging resistance levels above 1.58 while EUR/GBP briefly dipped to below the 0.84 level.

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