Weekly Currency Roundup - Federal Reserve Testimony makes big impact

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Pound Sterling – The Pound started the week looking upwards after it made gains against the US Dollar after an industry report showed that UK home sellers raised their asking prices for a fifth consecutive month in May. As a result of the data, Sterling climbed from its lowest level in six-weeks against the US currency.

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By midweek however the Pound began a run of losses against most of its peers. The currency fell to a four-week low against the Euro and against the US Dollar it tumbled to its lowest-level in more than six-weeks after data showed that UK inflation slowed more than economists forecast. The Pounds run of declines continued on Thursday after falling to a ten-week low against the US Dollar. Against the Euro, Sterling was close to a one-month low. The currency wasn’t helped by the Federal Reserve Chairman’s speech to congress that confirmed that the US will continue with its monetary easing policies

So far this year the Pound has declined by 3.1%, making it the second-worst performing currency after the Japanese Yen.

 

US Dollar

The ‘Greenback’ has had a mixed week thanks to the confusion caused by Fed Chairman Ben Bernanke. On Monday the currency weakened against a number of its peers and fell to as low as¥102 against the Japanese Yen and dropped against the Euro and Sterling as demand for riskier currencies improved.

The ‘Greenback’ continued to weaken against the majority of its peers on Tuesday due to traders paring back their expectations that the Federal Reserve would slow its quantitative easing programme.

It then weakened against the Euro for a third consecutive day as investors raised their bets that Federal Reserve Chairman Ben Bernanke would tell congress that the pace of the Bank’s monetary stimulus programme should be maintained. In reality Bernanke’s testimony was a mixture of the two, leading to confusion on the markets.

After the speech the Dollar advanced against most of its most traded peers after Bernanke said that the Central Bank could soften its monthly bond buying programme over the next few months if it is confident of sustained gains in the US economy. The ‘Greenback’ then declined as confusion over Federal Reserve Chairman Ben Bernanke’s testimony to Congress hit the markets.

 

The Euro

The Euro has had a mixed week. On Monday it strengthened against the US Dollar following comments made by Goldman Sachs chief executive Lloyd Blankfein who said that he was confident the Euro will survive despite the debt crisis. He rejected the view of billionaire investor George Soros that Germany should exit the Euro and didn’t accept the idea of joint liability for sovereign debt through so-called Euro bonds.

Midweek the Euro strengthened to a four-week high against the Pound and continued to climb against the US Dollar on expectations that the Federal Reserve would maintain its current level of quantitative easing in spite of recent positive US data.

On Friday the Euro edged upwards against a basket of its most traded peers as data showed that the Eurozone’s largest economy, Germany grew in the last quarter. According to Statistsches Bundesamt Deutschland the nation’s Gross Domestic Product inched upwards by 0.1%. The data has given investors optimism that Germany will post stronger growth in the second quarter of 2013.

 

Australian Dollar

The ‘Aussie’ has also had mixed fortunes this week. On Monday it strengthened against the US Dollar for the first time in three days due to signs that the currency may have been oversold. The ‘Aussie’ then rebounded from a two-week low against the US Dollar as traders took  bets that Fed Chairman Ben Bernanke would counter speculation that US policy makers are close to reducing the Central Bank’s bond buying programme.

Midweek the ‘Aussie’ began its run of declines as it went lower against the US Dollar due to the release of weaker-than-expected consumer sentiment data and a decline in commodity prices. It continued its month-long decline after the comments made by Federal Reserve Chairman Ben Bernanke. The currency was also weakened by weaker-than-expected manufacturing data out of China. As a result the ‘Aussie’ fell to an eleven-month low against the US Dollar.

 

New Zealand Dollar

On Monday the ‘Kiwi’ followed its Australian relation upwards due to signs that the currency may have been oversold.

At the end of the week the ‘Kiwi’ fell to an eight-month low after data out of China showed that the world’s second largest economy saw its manufacturing

output shrink in May. HSBC’s Purchasing Managers’ Index showed a preliminary reading of 49.6 in May, where a reading below 50 indicates contraction, adding to signs China’s economy is slowing.

The ‘Kiwi’ also weakened against the US Dollar and a number of its peers after a government report showed that the nation’s trade surplus for April was less than economist had forecast. The disappointing manufacturing data released by China is also weighing on the currency.

 

Canadian Dollar

On Wednesday the ‘Loonie’ fell to a two-month low against the US Dollar due to speculation that the Federal Reserve would choose to reduce its quantitative easing measures. The currency fell against all of its most traded peers as crude oil declined for the first time in four days.

It then fell to its lowest level in a year against its US relation after Federal Reserve Chairman Ben Bernanke said that the Central Bank’s monthly bond purchases may be reduced if the economy shows sustained growth. By the end of the week the ‘Loonie’ edged upwards against its US relation, making gains from a one-year low due to speculation that the US Federal Reserve may not taper its monetary stimulus programme as soon as investors expected.  The currency was also supported by a rise in commodity prices and data that showed that the number of Canadians claiming jobless benefits fell by 1% in March.

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