Sterling got a lift from this morning’s news from the Halifax that house prices were up 0.6% in July, compared to expectations for a fall. The GBP saw six month highs versus the dollar yesterday, rising as high as $1.5968, though many in the market feel that it could face stiff resistance as its approaches the $1.60 level. Versus the euro, sterling remains firm just below the Stg0.83p level. Todays release of PMI which came in below expectations has caused an increase in Short positions against the Pound and we will no doubt see some selling as the US market opens this afternoon.

Yet another round of US data have reinforced the markets’ view that the Fed will leave interest rates on hold for some time to come. Indeed, as the central bank itself continues to express concern about the pace of recovery, speculation is growing that the FOMC may take fresh measures to support the economy. Data released yesterday afternoon showed US consumer income and expenditure flat in June (compared to expectations for a rise in both), while pending home sales tumbled to a record low, implying an anaemic economic recovery for the remainder of this year. The prospect of a prolonged period of low rates in the US continues to offer support to the euro, which saw highs of 1.3260 versus the USD.

Risk sentiment in Asia this morning is trading on a much more cautious/weak note after overnight moves and as we head into ADP and more importantly Fridays NFP. Friday’s payrolls and the impact this will have on market sentiment vis-a-vis the FED next week are going to be the key drivers for FX in this low volume environment.

Buyers into the Dollar can expect further upside movement going into the North American trade however sellers should still look to cover positions as target points for speculators point towards 1.60 and above. What is evident against the USD is that we have seen a key reversal in trend and with the detteriorating outlook for the US economy and possible intervention from the FED sellers should remain particularly cautious. Buyers into the Euro should expect little price movement going into this afternoons trading session however we may see some short positions (selling against GBP) as the EUR/USD moves dictate a lot of the GBP/EUR price movement which currently looks quite bullish.

If you would like to discuss your requirement or if you would like a live trading quotation against any of the 16 most actively traded currencies do not hesitate to give me a call.

Tom Trevorrow

Senior Trader

+0044 1736 335274

tom.trevorrow@torfx.com