Is GDP Optimism Bad for U.S. Dollar?

The U.S. dollar is falling against the euro for the second day today as the traders expect a decline in the contraction of the U.S. GDP for the second quarter of 2009.
The dollar is also falling against the British pound, approaching its monthly low levels, as the GDP optimism is forcing investors to buy high-yielding assets around the world. The gross domestic product advance report for Q2 2009 is expected to show a contraction by 1.5 percent today compared to 5.5 percent drop in the first quarter of the year. If the report is released according to the market’s forecast today, there is a good chance for the U.S. economy to come out of the recession by the end of 2009 or in the first half of 2010.
Forex market analysts recommend to pay attention to the recent important events that spur the attractiveness of the risky and high-yielding currencies: rise of the global stocks, steady price growth in U.K. housing market and a significant slope in the U.S. treasuries. The only problem that’s still able to kill the global optimism for recovery is the increasing unemployment in all the developed countries.
EUR/USD rose from 1.4065 to 1.4108 as of 7:54 GMT today after trading as low as 1.4006 two days ago. GBP/USD went up from 1.6491 to 1.6560, while USD/JPY gain insignificantly — from 95.55 to 95.60.

South African Rand Down on Merging Speculations

The South African currency, which hit an eleven-month high versus the greenback this week, pared its weekly gains as an Indian newspaper affirmed that the merging of Bharti with MTN may take longer than expected, raising concerns about investments in South Africa.
After posting virtually two weeks of consecutive gains versus most of the 16 main traded currencies, on renewed optimism and stocks rally, the South African rand ended the week with a negative performance as the Economic Times stated that MTN Group Ltd., the largest African mobile-telephone operator will take longer to close a deal with Bharti Airtel Ltd., which is interested in a stake of Africa’s mobile network, promising the injection of $7 billion in the South African economy. According to the newspaper, the complexity of the deal may delay the negotiations in additional weeks, raising concerns about the money to be invested in South Africa by the Indian telecom operator.
The influence of the companies’ merge in South Africa is strong, considering the size of the deal, an eventual delay is expected to affected the South African currency, at the same time as a strong rand may decrease attractiveness for Bharti to invest in South Africa, since costs become naturally higher. This Friday’s devaluation was a healthy correction for the rand and for the upcoming mobile-operators’ deal.
USD/ZAR ended the week at 7.7495 from a previous rate of 7.7580.

Swiss Central Bank Attempts to Control Franc Gains

The Swiss central bank widened its foreign currency holdings in order to prevent the national currency to continue its rally, being the current foreign reserves in Switzerland the highest in twelve years.
The Swiss National Bank is struggling to prevent the franc to rally, as the demand for the Swiss currency has been on the rise since the first quarter of the year. The national foreign currency reserves reached 81.7 billion Swiss francs from a previous indication of 55.8 billion francs, being both reserves in euro, mostly, and in dollar, to a lesser extent, the most significant ones increased by the Swiss banking authority. The insistent rally in franc rates is rising concerns in Switzerland, affecting the national exports, as a higher currency lowers Swiss products price competitiveness abroad, and fears of deflation have been increasing, since the franc rates continue significantly high.
Analysts affirm that it will be a hard task to control the Swiss franc rates, as the demand for the currency remains strong, but since the SNB started a foreign currency purchasing currency, if the franc didn’t weaken, at least its rally was contained versus a number of important currencies. As long as the government intervenes on the Swiss franc, we are likely to see it neutral or losing ground against currencies like the euro and the Australian dollar.
EUR/CHF traded near neutrality today with 1.5186 as of 12:51 GMT from 1.5195 yesterday. USD/CHF also remained stable.

Pound Slides Versus Majors on Public Deficit

The pound dropped today versus the euro and the dollar, before a report, that even if did not come with extremely pessimist numbers, indicated a considerably high public deficit in the country, suggesting that the government may struggle to stabilize the nation’s finances.
The pound slid versus several currencies after posting multiple days of positive performance mainly against the greenback, but also versus the yen and, to a lower extent, to the euro. Even if the budget deficit published today was lower than expectations, at 13 billion pounds versus 15.7 billion forecast, the number is still very high, and almost doubles the figures for the same month last year, indicating that the British public finances are deteriorating. British finances have been facing a complicated scenario both in the public and financial sector since the credit crunch almost a year ago, and further reports like this are likely to weigh negatively on the pound outlook.
Analysts stress on the fact that public finances are in a long term negative situation, and further readings are likely to indicate pessimistic numbers, even if the current budget deficit is better than the previous one, the numbers are very high if compared to the pre-global slump figures. Currency specialists, in their majority, do not expect the pound to climb much further versus the main currencies.
GBP/USD traded at 1.6414 as of 11:43 GMT after reaching 1.6555 yesterday. EUR/GBP climbed to 0.8663 from 0.8595.

Pound Declines as Terrorist Attack Drives Traders to Safety

The pound posted its first day of losses versus the U.S. dollar this week as explosions in Jakarta, the capital of Indonesia, attracted investors to the safety of the greenback, stopping a five-day rally that brought the pound up on renewed economic hopes.
The pound was affected by two facts towards the end of the week as the optimism that made it rally versus the greenback slowly faded, forcing investors back to the safety of the yen and the dollar. Complications regarding the future of CIT Group Inc., were the first factor that moved markets’ trends this week, as an eventual bankruptcy of one of the biggest financial groups in the world would certainly raise concerns on the future of the global economy. Today, an orchestrated attack in Jakarta, exploding simultaneous bombs in two different hotels brought Asian markets down, and once again, increasing appeal for safer positions in the United States.
Currency specialists explain that the pound’s decline occurred due to market sentiment changes, which was previously favoring the pound with optimism, and now is once again risk averse, favoring currencies like the yen and the dollar. U.K.’s fiscal balance deterioration is also warning traders about further problems that may occur in Great Britain’s economy, adding negatively to the pound’s outlook.
GBP/USD traded at 1.6303 as of 10:19 GMT from a previous rate of 1.6450 before Jakarta’s blasts. GBP/JPY fell to 152.81 from 154.45.

Yen Rises After Hotel Blasts in Indonesia

The yen, known for its refuge investment profile, rose for another day versus most of the 16 main traded currencies as explosions in Indonesia brought a certain amount of tension to financial markets in Asia this Friday.
After starting the week posting losses versus a significant number of currencies due to a rise in risk appetite among traders, the yen rebounded since yesterday, when concerns regarding CIT Group Inc., which stated that will not obtain U.S. guarantee for its bonds and may file for bankruptcy, made traders once again tense and opting for yen priced assets to protect their portfolios. Today, two hotels in Jakarta, the capital of Indonesia, were target by explosions, which brought the Indonesian rupiah to the lowest level in two weeks and several Asian stock markets down, once again, leaving the yen as the safest option for traders in the region.
Japanese analysts stress on the fact that the world economy still did not find its way out of the current recession, and even if optimism sometimes rises in markets, the situation is delicate and a terrorist attack like today’s in Jakarta adds pessimism in equities markets, bringing traders back to the yen before the end of the weekly session.
AUD/JPY traded at 74.91 as of 9:43 GMT after hitting 75.80 hours before the blast in Indonesia. CHF/JPY followed, being traded at 86.84 from a previous rate of 87.52.

Pound Climbs on British Jobs Data

The pound climbed sharply against the dollar and the yen as an employment report with optimistic figures may have indicated that the worst of the recession is already behind, spurring demand for the British currency.
The pound, which lost significantly against the dollar and the yen last week, virtually pared its losses as an employment report in Britain brought optimism back among domestic investors. Today Intel Corp. forecast sales beyond analysts’ predictions, adding attractiveness for the pound sterling profile, which may proceed its rally if the current scenario remains unchanged.
GBP/USD traded at 1.6422 as of 20:16 GMT from an intraday price of 1.6275.