Risk appetite returns as the markets look to more QE
24/Aug/2011 • Currency Updates•
Sterling strengthened slightly against the Dollar in yesterday’s morning session, however this was relatively short lived as we saw profit taking on EUR/USD which strengthened the Dollar and Sterling suffered the same outcome. With what seems to be a slight return of risk appetite due to the possibility of more QE to the market, sterling had benefitted from this of late but there are concerns about the potential for growth in the UK’s faltering economic recovery. With investors also looking for safe haven retreats Sterling has favoured quite well as it appears to be the better of a bad bunch when compared to the Euro and even possibly the Dollar, however with all this in mind it is expected that negative data posted from the UK could spark a sell off as we are somewhat on neutral ground.
Better than expected data posted yesterday in the form of August factory orders did little to boost cable, this is widely believed to be due to the BofE not being expected to increase interest rates for some time and the possibility of more QE.
The Dollar fell slightly on Tuesday as investors look to a further stimulus package to aid the faltering US economy and ease speculation of a double dip recession in the US. Fed chairman Ben Bernanke is speaking this Friday at the central bank’s Wyoming retreat, the Jackson Hole, where last year he prepared the markets for a $600bn bond buying program.
If the fed look to a further stimulus package, or what is now commonly referred to as QE3, one would expect the dollar to weaken further as such measures increase the amount of dollars in the system and therefore lower their overall value. A keen eye will be placed on any reference to further quantitative easing and it is possible that just this could start moving the markets.
The Euro was up slightly against the Dollar yesterday again on the potential prospect of a further QE package from the Fed but still trading within its tight range seen since early July. Europe’s debt and recent banking issues have left the door open for investors to ponder over a possible package implemented by the ECB. Solid German manufacturing data yesterday did ease some if this speculation, however we have seen the ECB recently buying bonds from some of the ailing peripheral nations that had somewhat angered the Bundesbank as they firmly believe this is not the correct method for correcting other economies.
German and Chinese manufacturing data indicated more positive global growth, but this was somewhat marred by the German ZEW report which showed a sharp fall in confidence in the largest country within the Euro zone.