Welcome to our account of movement in the foreign exchange rates overnight.
Jumping wallabies! The Australian dollar has taken a cent from the pound and US dollar overnight, ahead of the two-day EU summit starting today. Why the emu dollar has made these gains though seems to be a bit of a mystery. Speaking about the rise, UBS interest rate strategist Matthew Johnson said: “Presumably someone’s moving capital around, but I’m not sure what’s going on exactly.” Indeed, there’s been no positive reports from Australia, nor rise in risk appetite, to explain this climb.
One possible explanation is that, though hopes for the forthcoming EU summit could not be much lower, the markets don’t want to burn their bridges entirely, and so are poised to go “risk on” should EU leaders surprise with something positive. In that sense, the climb in the AUD is about as speculative as it comes.
The climb in the emu looks to be entirely about investors hedging their bets. Hence, whether the AUD sustains these gains depends on whether EU leaders make (against all expectations) concrete steps to end the debt crisis.
It’s been a quiet 24 hours for the pound, with the rates (outside of Australia) standing stock still. However, that could be set to change today, both because of the aforementioned summit, and because the third estimate of Q1 growth for the UK is released. The last two estimates confirmed the UK in recession, so if growth is revised upward it could give the pound a real boost. (Alas, there’s no special reason to think they will be.)
The UK growth figures are released at 09.30 this morning. In addition, elsewhere we also have German unemployment figures, as well as US growth figures, which could also move the markets later on.
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I will return with my next update tomorrow.
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