USD Continues The Fightback

USD Continues The Fightback

June 9, 2009

Following a mauling in the European elections and a flurry of resignations and shouts for his resignation..Gordon Brown lives to fight another day! In a meeting with over 400 MPs he secured enough backing to push on. Sterling has reacted positively and is pushing higher across the markets including the USD and EUR as fears and uncertainty in the market are quelled, for now anyway.

Sterling was also boosted by further improvements in UK housing data- a survey by the Royal Institution of Chartered Surveyors showed house prices falling at their slowest pace since November 2007. Speculation is also helping sterling through positive M & A flows on the proposed sale of Barclays fund business in cash and stock to Blackrock Inc in the USA. Also in the UK we saw retail sales data fall 0.8% in May following the 4.6% rise in April- this dip adds a small dose of reality to recent improved confidence- it seems we are seeing optimism going forward but we are not going to push the boat out just yet! Cable is now targeting 1.6150 and then 1.62 on the upside levels, with 1.60 still a key pyscholigical support.

The euro has come under pressure following a dressing down by the IMF. The IMF highlighted their weak financial system and lack of a co-ordinated and aggressive plan for the euro-zone banks could deflect their drive for recovery. The IMF said “a key missing element is a proactive strategy to deal with a weakened financial system.”, interestingly ECB members Stark and Weber s comments sharply contrasted that of the IMF as they noted the fact that price risks are on the upside and recent easing and stimulus may need to be reversed very quickly Stubborn or good policy, only time will tell. The worry on banking issues especially in eastern Europe could seriously hamper the euro going forward. GBP/EUR has bounced back to 1.1570 and looks bullish this morning.

Over to the US and risk sentiment was helped by reports that the US Treasury will announce today that 10 US banks are to repay TARP- essentially paying back government shares. This has helped boost risk and this has eased the USD lower for now- we mentioned yesterday that better economic data on Friday actually helped strengthen the USD but this has not followed through as yet today.

Report by Phil McHugh

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