IB FX View
Dollar under the hammer
Monday August 3, 2009
July ended on a sour note for the U.S. dollar with its index left hanging precariously over the cliff until Monday. The weekend appears to have brought little respite and the selling continues, boosted by better reports across the world for manufacturing data and the health of the banking system. Traders will continue to sell the dollar until they realize it’s a bad sport. Proving that point today, London’s banking analysts missed the mark by several miles when trying to predict earnings at Europe’s largest bank, HSBC Holdings. The predicted $600 million semi-annual loss actually turned out to be a $3.5 billion profit. For now, it appears that no investor wants to be left behind and the mantra seems to be one of, act now and think later.
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The British pound is at a 10-month high versus the dollar after the HSBC news coupled with a $1.8 billion profit report from within Barclays Bank helped spur banking stocks higher by 4.6%. The pound buys $1.6833 while it also strengthened against the euro, which buys 85.10 pence.
Two industrial surveys boosted the prospects for the British economy. A CBI survey of small and medium-sized companies showed new orders and output were expanding. At the same time a survey of British factories from the CIPS showed that manufacturing output returned to its highest level since March 2008.
A Eurozone manufacturing survey as well as one from Australia both indicated that the pace of manufacturing contraction was easing in both areas. In China the CLSA purchasing managers index rose to its firmest reading in a year at 52.8 and now shows four months of growth. With a Chinese economy growing at 7.9% per year the $585 billion stimulus cake has been neatly iced by a mammoth coating of $1 trillion in new loans. This has allowed output expansion and new order growth domestically while this month’s survey also reports an increase in export orders.
A separate report today also suggests that within six years, the U.S. will lose its crown as the world’s largest manufacturer to the Chinese.
The overall sour-dollar tone has the euro buying $1.4372 this morning. Over the weekend former Fed chairman, Alan Greenspan noted that such had been the decline in output throughout the recession that the present snap back rebound might catch economists by surprise and create a faster economic fix than is currently priced in. That’s certainly being priced into all asset classes for now at least as equities continue to rise and commodity prices head higher.
The Canadian dollar accelerated its move versus the dollar after the price of crude oil broke $71 per barrel for the first time since October. The Canadian dollar buys 93 U.S. cents. Meanwhile the Australian dollar also rose to buy 84.05 U.S. cents after the price of gold snapped back with fury to $960 per ounce.
The yen continues to feel the flipside of a return to growth around the world. The yen is falling against most other currencies including the dollar, which today buys 95.30. The theory remains the same. Japanese investors will join the rebound party, trading their yen for anything that shows a pulse outside the nation’s boundaries. The euro rose to buy 137.10 this morning.
Andrew Wilkinson
Senior Market Analyst ibanalyst@interactivebrokers.com
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