Daily Currency Insight courtesy of Halo Financial

(Helen Fox) #1

Today's Highlights

• Irish rumour keeps markets guessing

• Dollar boosted by Euro concern

• Sterling continues in upward path

FX Market Overview

After a weekend of scintillating rugby, thrilling motor racing and ...oh yes...rain, returning to the office isn’t so bad is it. I am still amazed that the England rugby team performed to a standard we haven’t seen in many years. What a turnaround, Australia snatched a win against the All Blacks, the Kiwis go on to beat England and then the Wallabies are made to look very ordinary by England. If Martin Johnson can keep his men performing at that level, the World Cup holds no fear.

Away from all this excitement, back in the depths of the foreign exchange market, traders are still absorbing the effects of Friday’s excitement. In fact Friday gave us a terrific example of why automated market orders are so very valuable. A shout went around the markets that, after weeks of speculation that it may happen, Ireland had agreed a bailout agreement with the European Union. Sterling and the US Dollar both lost ground against the Euro in the moments that followed and those with orders in place to sell the Euro were rewarded with a cent or more of gain in no more than 10 minutes. Then the denial was announced from the Irish government; no deal had been agreed and none was being negotiated, we were told. However, they did not rule out the possibility of the need for such an agreement in the future though. The rebound was a quick as the initial movement and the Euro returned to its previous position which is where it remains this morning.

This excitement completely overshadowed the slightly weaker than expected Quarter 3 EU economic growth data and a decline of 0.9% in EU industrial output. Traders are clearly focussed on the debt factor and other fundamental activity is playing second fiddle. Trader and analysts are discussing whether the Eurozone could have another round of debt crisis and that is enough to make investors steer clear of the Euro for now.

All of this gave Sterling a bit of a fillip and it made gains across the board. This Wednesday’s release of the minutes from the last Bank of England meeting will be closely watched. We know that the BOE left both the base interest rate and their quantitative easing volume and length on hold but the comments in last week’s Quarterly report showed the potential for sustained and elevated inflation without any commitment to higher interest rates. We wonder whether this was discussed in the meeting. What is interesting though is that the BOE Governor, Mervyn King has not as yet made moves to weaken the Pound, as is his wont. Do be surprised if he uses Wednesday’s release as the opportunity to do so.

Elsewhere the US Dollar was also being flattered by the weakness of the Euro. It gained against the Japanese Yen, Sterling and the Australasian Currencies as investors took the risk-averse option of selling riskier assets and buying US Treasuries. This also resulted in a little weakness in the Aussie and Kiwi Dollars. The New Zealand Prime Minister John Key made it clear that he sees the Kiwi Dollar as overbought at these levels so the moves overnight will have cheered him a little. However, the reasons for the NZ Dollar’s popularity are undiminished; high interest rates, relatively strong export demand and a fairly robust domestic economy all contribute to the NZ Dollar strength. In effect, as far as the kiwi Dollar goes, NZ is a victim of its own success.

Today’s major news revolves around the US retail sales data which should show growth; albeit slowing growth. We will also get the Empire State manufacturing sentiment index and a measure of US stock holdings in the wholesale inventories data. We can expect the US Dollar to be volatile. The rest of the week is centred on consumer price inflation and retail activity but the ongoing Irish question will haunt the Euro and Wednesday’s BOE minutes will keep Sterling on its toes. We will also get UK employment and public sector debt data so that’ll be interesting reading. Hold onto your hats and look ahead to a very bumpy ride this week.

And finally, police may be prompted to arrest more drug dealers after the Birmingham police found £1 million in an attic above a drug dealer’s house in Stechford and were told by the courts that they could keep the ill gotten money which will be ploughed back into crime solving. Hopefully this will give rise to a new adage, ‘Crime doesn’t pay....unless you are a police force solving it’. I could live with that.


“A market researcher said ‘Can I ask you 10 questions’,

I said ‘Go on’,

She said ‘question number 1 have you ever had a blackout?’

I said ‘No’,

She went...’and finally, question number 10.’”

Lee Mack

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