Equity markets continue to rally higher and the US dollar continues to lose ground on trade weighted basis. The greenback is the lowest it has been against a basket of currencies this year and moved to a 12 month low against the euro of 1.4766 in trade yesterday.

Dollar is now seen to be the main funding currency for carry trades, which allow speculators to gamble on yield differentials, due to its low interest rate. Investors borrow money in USD and invest in high yielding currencies such as the AUD and NZD. It will come as no surprise that the NZD and AUD are particularly strong at the moment and forecast to strengthen.

The pound continues its performance of the last month as the worst performing G10 currency. As you can see from the rate table below we are now in the low 1.11s with momentum behind this move to push us even lower still, probably down to 1.10. Retail sales for the UK were poor yesterday, dragging sterling to fresh monthly lows.

GBP is once again in the crosshairs with news of M4 money and PSBR; these are good indicators of a) the money in the economy and b) the levels of debt the UK is running, These will probably be pretty horrendous and could act as a catalyst for another leg down on fx markets.

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