Daily Currency Insight from Halo Financial

(Clare Allen) #1

I write from a snow bound East Sussex, unable to get to my desk in London because Britain doesn’t do snow. About 16 inches of snow has fallen here in the last 48 hours. That’s about a metre and a half isn’t it or is it a kilometre? I can never do that decimal thing. Anyway, it’s deep and crisp and even so not much is heading anywhere at the moment. I hope you and yours are all safe in this melee. However, beware; there is probably a shortage of carrots and pieces of coal at this stage. These snow men don’t equip themselves with facial features and buttons do they!

Unlike the UK transport system, the markets have been pretty active. All eyes were on Portugal yesterday where a government bond auction, which had been the centre of attention, was overshadowed by widespread rumours that the European Central Bank had embarked upon another round of bond purchases from some of the Eurozone’s more troubled economies. That bought the Euro a bit of respite and it strengthened through the latter part of the day. Sterling once again failed to break above €1. 1950 and the Euro-US Dollar exchange rate saw the fastest daily decline in the US Dollar in 6 weeks. The US Dollar and the Euro have a pretty logical correlation in that if the US Dollar strengthens, the Euro weakens as investors move their funds between the most liquid currency in the world and the 2nd most liquid. We will watch today’s ECB press conference with interest. There is little chance of any change in the interest rate but the decision to buy bonds will be queried and the size and scope of their plans will be the main talking point. Given the right answers, we could see Euro strength in later trade so Euro buyers may want to act early in the day.

Today’s main news is all European in nature and even before the ECB makes its interest rate and bond purchasing announcements, we will see the 2nd estimate of EU economic growth for the 3rd quarter. Growth of 0.4% is the general forecast but with German manufacturing struggling and all the problems elsewhere in the Eurozone, don’t be surprised if this figure is downgraded. That would weaken the Euro.

The Pound was swept along with the US Dollar and lost ground against the Euro and other currencies and was hit by mixed messages from the data releases. The fastest rise in manufacturing sentiment in 18 years was a real fillip for the Pound but the 4th fall in house prices in 5 months didn’t help. This morning brings the construction sector purchasing managers index which, if it is in line with the Manufacturing one, will help Sterling regain its equilibrium.

At 3pm today whether Britain will get to host the football world cup in 2018. It appears pretty clear that the presence of David Beckham at the final meeting has been very influential; overshadowing his colleagues David Cameron and Prince William. Now who do you have to bribe to get a World Cup around here?

And finally on a sombre note the New Zealand Prime Minister John Key addressed 11,000 mourners today as the country bade a final farewell to the 29 miners buried in the Pike River coal mine.

Written by David Johnson, Director at Halo Financial