Daily Currency Insight from Halo Financial

(Clare Allen) #1

Countries are lining up to have a dig at America for expanding its quantitative easing program and thereby weakening the US Dollar. At a time when currency manipulation ranks up there with sheep worrying and satanic ritual as an undesirable activity, the wrath of the world is being heaped on the US for their apparent ‘weak Dollar’ strategy. There is a lot of pot and kettle going on here though when China is just such a manipulator, Japan is selling the Yen to weaken it, the Swiss are doing likewise and Bank of England Governor, Mervyn King is meticulously adept at saying the wrong thing at the wrong time - quelle surprise. So they are all at it except, it would seem, the European Central Bank but when the strong Euro is doing damage to EU exporters, it may only be a matter of time before they join in.

However, so strident has the criticism of the US been that Fed Chairman Paul Volcker was forced, in a speech yesterday, to acknowledge the concerns of other nations before stating that the US central bank has to look beyond the criticism because it has a need to boost economic activity and bring down unemployment. With China’s concerns over the US decision creating bubbles elsewhere, with the EU telling China it must let its currency strengthen and with ECB members criticising the US, we head into a G20 meeting which is likely to produce little consensus on currency management.

In the meantime, the Euro has come under pressure through concerns over whether countries like Ireland, Spain and Portugal may be forced to seek further assistance from the European Union or the European Central Bank because the sales of their government bonds are being undersubscribed. Another expansion of central funding for national banks within the Eurozone would put further pressure on the Euro and these fears have seen flows into safe havens increase sharply. Gold hit a fresh all time high and the Japanese Yen regained very unwelcome strength - unwelcome as far as the Bank of Japan is concerned at least.

Overnight news that the Royal Institution of Chartered Surveyors (RICS) reported a fall in house prices amongst 55% of the estate agents they surveyed seems to have been shrugged off by the Pound but that doesn’t mean it won’t slow any Sterling progress in the days ahead. Sterling did have a rather better day yesterday and even flirted with pushing above some technical levels against the Euro but a lot of that strength was merely exaggerated by US Dollar and Euro weakness. However, underlying data does not really support rapid Sterling strength so the broader slow advance that has been in place since December 2008, looks set to continue.

Elsewhere, the New Zealand Dollar is bobbing along on mixed news. Poor housing data and weak consumer spending are keeping the NZD on the back foot but the fact that the Reserve Bank of New Zealand is gently removing monetary expansion tools does suggest we are steering towards further interest rate hikes and that is keeping up interest in the NZ Dollar as a yield provider when so many other interest rates are so very low. However, the news that US authorities have banned kiwifruit vine imports from NZ due to fears over a virus didn’t help the NZ Dollar. Traders are though hoping for a slightly more upbeat tone from the Reserve Bank of New Zealand when it releases its financial stability report this week.

Across the Tasman Sea, the Australian Dollar is also in mixed and muddy water. Business sentiment hit a 15 month low but that was perhaps to be expected when China; Australia’s largest export market, is making plans to slow imports. Nervousness in the Eurozone could well damage the Australian Dollar as it tends to weaken demand for higher yielding but perhaps slightly riskier assets.

And finally, Czech politician Ivona Fiserova, was so angry when she was criticised for turning up at council meetings in a figure hugging dress that she has vowed to strip naked for a well known men’s magazine and donate the fee to charity just to annoy her critics. Whatever your thoughts on that, I just hope this doesn’t start a trend; I mean Ann Widdecombe in a dancing competition show is one thing but Playboy!!!!

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