Daily Currency Insight from Halo Financial

(Clare Allen) #1

Well Jenson Button and his colleagues had an eventful weekend ...off the track that is. Thank goodness for the police driver who averted what could have been a much more frightening event. And Her Majesty the Queen has had a busy weekend in becoming a member/user/time waster on facebook. A conversation along the lines of “One has been prodded Philip”. “I think you mean Poked Liz” may well be heard in one of the Houses of Windsor in the days ahead.

The markets had a well earned rest after a very busy week in which everyone came to terms with a shift in the economic potential. America saw its central bank preparing to shunt another $600 billion into the economy over the next 8 months in order to stimulate economic activity but analysts and commentators are generally unconvinced by the plan. Whether providing another $600 billion will do anything more than the already committed $1.7 trillion is a fair question. It would seem that if that money could be guaranteed to reach the consumer end of the market then analysts would be more convinced but, as in the UK, the funds set aside for quantitative easing seem to reach the banks and stop there. Lending in the US, UK and EU for that matter, is still very subdued in spite of the trillions being poured into the banking sector. Until that money flows beyond the banks it seems we may still watch a recovery of glacial pace.

But while the US is so nervous over its potential for recovery, in stark contrast, the Reserve Bank of Australia was seen to hike its base rate by another 25 basis points and warn of further hikes if the Aussie economy doesn’t slow. Obviously Australia’s stimulus is the seemingly untroubled pace of exports into China. However, China has been taking steps to slow its economic growth and to try to staunch the pace of house price inflation. They are fearful of a bubble which could cause immense damage to the Chinese economy when the bubble bursts, as all bubbles do. The Australian Dollar may come under pressure from the slide in commodity prices which is being prompted by a recovery in the US Dollar. This recovery isn’t large scale but it is a bit of welcome relief for those with Dollars to sell.

Elsewhere, the movement in the US Dollar has caused a little strength to return to the Pound against the Euro but not much else. Sadly, the uncertainty over the likely recovery or otherwise in the UK economy continues to weigh on the Pound. You know the script by now; cuts, VAT rise, surprisingly strong growth but nervousness over whether it will last etc etc blah blah. It would have been helpful if the Bank of England gave some hint on its view when it left interest rates on hold last week but that was not to be. We do though get the quarterly inflation report this week and that will give an insight into the perceived future path of the UK economy. In essence, we should expect further volatility in the value of the Pound but it is doing rather well against the Euro. It is however, finding it hard to make gains above €1.1450.

The Euro for its part is still doing rather well in spite of a lot of speculation over the fundamental problems evident within the Eurozone. We get German and EU wide industrial production data today alongside trade balance data so we may be able to draw some conclusions from that.

I know I am jumping around a bit but the New Zealand Dollar has also been in the news. The headlines tell us that the Kiwi Dollar weakened after a report showed infection in a major Kiwi Fruit plantation and after the government’s cash deficit was shown to be wider than forecast. However, whilst that weakness can be seen against the US Dollar, it didn’t manifest itself in a fall against the Pound which, as we have already discussed, has its own problems. In spite of the Australasian problems, it sadly didn’t stop the southern hemisphere teams from cleaning up in the weekend’s rugby fixtures. I dunno, they come over ‘ere beating our teams.....

Other than these few items, there are plenty of other themes running in the markets right now; too numerous to cover in this short report but I will do into them in more detail tomorrow.

In the meantime, take a look at this news story about the couple who had their caravan stolen from their driveway in June 2009. The police had no clues as to the thief’s identity until the much maligned Google Street View showed a man on their driveway with a 4x4 vehicle preparing to whip their caravan away. The police haven’t yet identified the man but it is a good place to resume the search.