Dollar weaker, but hardly alone

Currency trading is off to a rather quiet start in New York. Global stock markets appear buoyant with the headwinds that had buffeted investors more recently continuing to subside. The Bank of England provided insight into how borrowers failed to benefit at the time they needed most help concluding that banks likely tried to boost their own capital provisions instead. The pound continues to trade negatively once again as next month’s spending cuts come under the spotlight.

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U.S. Dollar – The dollar eased against riskier currencies overnight as the Asian session saw investors lift equity indices higher. The buoyant mood of optimism spilled over into European trading where equity prices continue to make gains. Nevertheless the dollar is hardly in freefall today and as yet the wave lifting the risk boat higher has yet to prove that it won’t take on any water. The dollar index is lower over the weekend, although earlier gains for the Aussie and Canadian dollars appear to be coming undone while the European currencies of pound and euro can hardly be said to be facing calm seas just yet.

British pound – The pound was lower following the Bank of England’s quarterly inflation report. In it, the central bank expressed some surprise at the rebound in the currency since the summer time election. The Bank says that a newfound confidence in how the new government has tackled the fiscal situation is likely behind sterling’s strength. The pound has nevertheless tripped up today and buys $1.5620 despite broader dollar weakness while it slipped per euro to 83.84 pence. The Bank also provided some analysis on the worrisome plight of regular borrowers who failed to benefit from the leveling of interest rates to near zero. Rates on unsecured lending stayed pretty much at double-digits despite the central bank’s efforts to spur lending.

Euro – The euro remains up so far in the session and buys $1.3096 having touched $1.3121 this morning. The recent high-water mark for the euro came on Friday when it reached $1.3159. It seems that investors are growing tired of the negative sentiment behind the shaky European banking system and worried over a sovereign collapse. Without a slump in economic activity the euro no longer remains a natural choice for the next casualty, and a severe downturn hardly appears likely casting an eye over data patterns during the summer.

Japanese yen – The yen rose versus the dollar and reached ¥85.50 overnight and continues to stay positive for the session against the dollar. The yen is, however, doing little more than trading sideways bordered by opposing views and governed by fear that the Bank of Japan might control its destiny. The recent range has to give way in one of two directions and when it does will likely see momentum snowball as traders are forced to go with the flow. The euro made further, albeit, marginal headway rising to ¥112.18 while the yen strengthened against the pound to ¥133.77.

Aussie dollar – The Aussie rose to another two-year high against the dollar after its central bank governor Stevens forewarned over the potential for a resumption of interest rate increases next year should mining output escalate into a boom. Mr. Stevens warned of the hand-in-hand dangers of rising growth and inflation that might contribute to the need to create a further firewall in the shape of tighter monetary policy. The Aussie hit 94.56 U.S. cents before some light profit-taking.

Canadian dollar – The Canadian dollar also made an attempt to regain some ground lost recently against the dollar launching an early assault at 97.00 U.S. cents. The loonie had reached its lowest point in four days on Friday when stalling consumer confidence in its largest export market rattled Canadian longs. The Canadian currently buys 96.83 U.S. cents.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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