A daily look at the FX markets from Moneycorp.com.
For the latest FX Daily Trading Update see FX Day Trading.
FX Day Trading - 1 September 2010
Sterling looks a little vague
Australian GDP up by 1.2% in Q2
Manufacturing PMIs today
A Japanese chap by the name of Shigeru Kondo has calculated the value of Pi to 5 trillion digits. The exercise took him three months on a computer he built especially for the task. Kondo San's diligence will be welcomed by geometers everywhere in their ongoing struggle to make circles more round and chords more harmonious.
It took the Bank for International Settlements (BIS) a little longer than three months to run the calculations on its latest triennial survey of the forex market but the result is considerably more interesting.
Global turnover in April this year was US$4 trillion, 20% more than in April 2007. A 48% increase (by value) in spot** transactions means spot now represents 37% of all FX activity.
The US dollar is still the most heavily-traded currency, taking one side of 85% of all transactions. In comfortable second place is the euro, accounting for 39% of business. The yen comes third with 19% and the pound takes fourth place on 13%.
This column often refers to the relative liquidity of different currency pairs.
The BIS figures make clear the difference between EUR/USD, which hogs 28% of all FX turnover, and the also rans; USD/JPY 14%, GBP/USD 9% and all the others that account for 6% or less of the market.
Over a trillion dollars' worth of EUR/USD is transacted every day, roughly ten times as much as changes hands in GBP/EUR trades. With numbers like that it is easy to see which pair enjoys the more liquid market.
By the same token, it is easy to see from the figures where FX expertise clusters around the world. The United Kingdom (and that means London) handles 37% of global turnover. It is more than double the 18% accounted for by the United States (New York and Chicago). No other country makes it into double figures. Paris and Frankfurt together do less business than Singapore.
But investors' appreciation of Britain as a forex leader does not necessarily translate into an appreciation of the British pound. It didn't yesterday, anyway.
Sterling was not exactly on the run; it was under pressure. It starts this morning unchanged on the day against the US and Canadian dollars and the yen but elsewhere it is lower. It is difficult to blame the economic data for the pound's slippage.
GfK's index of consumer confidence improved by four points when it had been expected to fall (admittedly the improvement still left it at a negative 18). Although net mortgage lending increased by only £100 million in July the number of mortgage approvals in the month was slightly higher and net consumer credit increased by more than expected. There was nothing in any of those figures to justify a selling spree, it was more a matter of investors failing to come up with any good reason to buy the pound.
The rest of Tuesday's data did not achieve much either. German employment data were fractionally worse than expected though not sufficiently so to be worrying. The unemployment rate in Germany was steady at 7.6% with Euroland as a whole at 10%. Canadian gross domestic product (GDP) grew by 0.2% in June, exactly as analysts had predicted.
The day's most heartening figure was the 4.2% annual rise in US house prices. It was not a stunning increase but in a sector overwhelmed by bad news any improvement is welcomed. The minutes of last month's Federal Open Market Committee meeting brought no surprises and therefore had a calming effect on the market.
Early this morning the Australian dollar jumped higher after the figures for second quarter GDP came in above forecast. Growth in Q2 was 1.2% and the Q1 figure was revised upwards from 0.5% to 0.7%.
It being the beginning of the month, today brings the manufacturing sector purchasing managers' indices from Switzerland, Italy, France, Germany, Euroland, Britain and the United States. The readings for August are all expected to be lower than in July. ADP's employment change report will provide a pointer to Friday's US non-farm payrolls number.
** 'Spot' transactions are those which settle in two working days' time ('on the spot'); 'forwards' are the trades that settle on any other day
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'FX Day Trading 1 Sep 2010', Article by Moneycorp, last update: 1-Sep-10
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