Foreign Currency Transfers and US Dollar

  • 17 years ago
  • Uncategorized
Sterling held comfortably above $2 all week, coming close to $2.02 on three occasions. Towards the end of the week it drifted lower and it opened this Monday just over $2.01.

For most of last week the market was content to ignore the evidence of a stuttering US economy. Lower Factory Orders and fewer Pending Home Sales – those between exchange of contract and completion – were offset by a stronger Purchasing Managers’ Index and more new jobs than had been forecast. Investors were not tempted to buy US Dollars on the good figures, nor to sell on the bad ones. Dollar supporters had pinned their hopes to Friday’s Non-Farm Payrolls number. Economists were predicting an increase of 125,000 jobs but market gossip was talking the figure up to +150k. Thus it was that a perfectly respectable 132k increase was seen as a disappointment. It should have encouraged buyers of the US Dollar; in fact it merely prompted a round of selling.

Sterling’s albatross was Thursday’s Monetary Policy Committee meeting. Nothing else really mattered during the week. The MPC was expected to deliver a quarter percentage point increase in the Bank Rate to 5.75 per cent. The problem for Sterling was all the investors and speculators who had spent the previous several days building up their stocks. They were so eager to take their profits that Sterling was on the way down even before the rate announcement. The announcement itself produced a quick upward spike to the week’s high and then the selling resumed. Sterling was looking slightly less bruised when the London market got going this Monday morning but there remains an underlying concern that we might have to wait for a few months for another rate increase, if indeed there is to be one.

So what to do?
The failure of the market to react positively to the relatively good US Non-Farm Payrolls figure at the end of last week does not bode well for the US Dollar. From Sterling’s point of view the base rate carrot that encouraged recent buying has now been eaten by the donkey. For Sterling to prosper in its own right investors must discover some new motivation. Otherwise it will have to rely on the market’s disenchantment with the US Dollar. Sterling may be in the process of consolidating within a new trading range above $2 but it has more work to do before we can be sure.
Buyers of the Dollar may well be able to buy more cheaply in the future but should get at least some on board now, to avoid the potential embarrassment of missing it if the Pound drops back.


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Article source: Moneycorp

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