Currency Roundup..

   The USD gained against the yen after revised US GDP figures came in better than expected and interventionist fears led to a yen sell off. Q2 figures were 1.6% for YoY GDP, lower when compared to the original figure of 2.4% but above the 1.3% estimates. Q2 personal Consumption was 2%, which was higher than the 1.6% last month and the 1.7% estimate too. Whilst above its estimate the GDP figure was still revised down considerably from the original and this may cause concern given the ongoing misgivings about the pace of the US recovery. The markets are currently speculating over whether Ben Bernanke and the other Central Bankers in Jackson Hole will unveil further stimulus measures designed to lift the economy. Even if they do, analysts are split as to how the market would react with most probably believing it would lead to a rally in equities and possibly - or possibly not - the dollar (depending on whether risk leads to a rally or not that day), but probably a drop given that is the usual relationship; but other analysts argue that more stimulus could be interpreted as a sign of defeat because the original stimulus didn’t work and further stimulus will only cause debt problems further down the line as governments mostly pick up the tab. At midday GMT the dollar was trading at 1.2717 to the euro and 1.5517 to the pound.

   Data out today was mainly from Germany and showed their CPI had slid from 1.2% to 1% in August. It is the first negative sign from Germany after the perfect report card of recent weeks. The euro traded within ranges this morning as the markets waits for reports from Jackson Hole and the symposium at which ECB governor Jean-Claude Trichet is also a guest. There is unlikely to a rate hike in the foreseeable future after comments he made saying growth would probably be uneven for some time. At midday GMT the euro was trading at 1.2717 to the dollar and 0.8194 to the pound.

   Data released today gave mixed indications as to the pace of the economic recovery and failed to live up to expectations generated last week on the back of more positive data. UK exports rose but below estimates. Q2 Exports jumped from -1.7% to 1.1% whilst estimates had the figure at 2.1%. GDP was up from initial forecast of 1.6% to 1.7%. However gross fixed capital formations unexpectedly slipped from 4.5% to - 2.4% in the second-quarter, with business investments falling by -1.6% when they rose 7.8% last month. Fears persist that the coalition governments austerity policy will de rail the fragile recovery although a rate hike is becoming more likely as inflation continues above the BOE’s 3% target. At midday GMT the pound was trading at 1.5517 to the dollar and 131.37 to the yen.

   The yen fell across the board after intervention fears spread on the news Prime Minister Kan was going to give a special press conference on the economy and the yen. Investors may have also feared increased political pressure could force Kan to intervene after taking a broadly non-interventionist stance so far, relying solely on ‘verbal’ intervention. But his enemies argue this is not enough to keep the yen down and support exports: Japan’s life-blood. Recently a political heavyweight in his own party decided to stand against him at the next party elections in September and gained the support of former disgraced front-man Hatoyama. The pressure to look like he is doing something proactive to influence the economy is growing on Kan, and investors are likely to steer clear until there are fundamental reasons to reinvest in the safe haven. At midday GMT the yen was trading at 84.67 to the dollar and 107.67 to the euro.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst