The US dollar rose against all the major currencies last week, except the British pound, which was lifted by a strong employment report and a tick up in wage growth. The greenback's gains are consistent with our caution last week against playing for a breakout as key support for the dollar had been approached. The issue remains the same for the week ahead. Assuming no exogenous shocks, such data or comments that require a significant reassessment of the macro-view, that is to say, the continued status quo favors continued range trading.
By Tom Lydon:
With the British economy teetering on another recession, market observers are anticipating new stimulus measures from the Bank of England, driving the British pound currency, along with a related exchange traded fund, to a three-year low.The CurrencyShares British Pound Sterling Trust (FXB) dropped 4.4% over the past three months.
By Marc Chandler:There were three important price developments among the major currencies in the past week.First, encouraged by more hawkish signals from the Bank of England, in contrast to the Federal Reserve, Bank of Japan and the European Central Bank, sterling was bid to new multi-year highs. The Commitment of Traders data show the continued building of gross long sterling positions, and this was prior to the pound sustaining the move above $1.70.
Hickey and Walters (Bespoke) submit:
The US Dollar Index has pulled back from 52-week highs in recent weeks, and it is now sitting just above its 50-day moving average. At the same time, the euro really hasn't bounced much, and it remains in a nasty downtrend. Two currencies that have gained ground in recent weeks are the British pound and the Swiss franc.
If the Bank of England raises interest rates on Thursday, will the pound rise or fall? Thinking about the answer to that question tells you all you need to know about the series of bad choices confronting our central bank.
Marc Chandler submits:The U.S. dollar is still consolidating/correcting its recent decline against most of the major currencies today. The notable exception is the British pound, where a considerably stronger than expected initial estimate of Q3 GDP (0.8% quarter-over-quarter vs 0.4% consensus) and an upgrade in its sovereign rating to stable from negative has bolstered the currency. The data would seem to undermine the prospects a new round of asset purchases this year.
If you accept the textbook explanation of what happens when a country’s currency appreciates, the United Kingdom would have every right to be nervous. The pound has appreciated some 8 percent over last year both in trade-weighted terms and against the dollar, and buys roughly 5 percent more euros than it did a year ago. And such a sharp move usually portends bad economic news: net trade should suffer, bringing GDP growth down with it.