Good afternoon ladies and gents, hope you are all surviving today. The grey skies of London are making me miss France even more than usual today! Here is today's currency insight, enjoy!
Friday was all about the US data. We heard that the US economy grew at an annualised 2.0% in the third quarter of the year and inflation cooled, just as did the confidence amongst businesses. All three indicators suggest the Federal Reserve will us this week’s meeting to increase the budget it has allocated to repurchase bonds in order to boost the money supply. They are already holding $1.7 trillion of ‘assets’ and many are forecasting they will add another half a trillion to that budget but spread the expenditure out over the course of the nest year. These are eye watering numbers and no one appears certain what this will do to the US Dollar. Probably nothing I would guess but the text of the Fed’s announcement will be the decider in that equation. The general consensus seems to be that a strong statement of QE expansion will boost the share markets, boost the level of investor confidence and weaken the US Dollar. That ought to equate to weakness in sterling as well though so beware.
That is all happening on Wednesday; we also get interest rate decisions from the Bank of England and the European Central Bank on Thursday and the decision from the Reserve Bank of Australia on Tuesday. No one is expecting much from the BOE or the ECB, so Sterling and the Euro are likely to tread water ahead of these decisions but here is an outside chance that the Bank of England will take the slowing Growth data released last week as a signal to either expand the UK money supply or at least to discuss doing so in earnest. If they make a move, then we will know about it on Thursday, although it must be noted that, at the time of writing, no press conference has been called for the aftermath of the rate announcement so we can’t expect any announcement just yet. Sadly though, if they only talk about monetary expansion, we won’t know the details for a fortnight when the minutes are published. Both the Pound and Euro are relatively strong as I write and both the Pound and Euro are on the cusp of breaking the trend against the US Dollar, so this may be a direction changing week.
The other central Bank in the news will be the Reserve Bank of Australia. There has been an immense amount of ‘will they - won’t they’ debate over whether the RBA is ready to hike Australian interest rates again. Events in their major export markets, America and China, are as central to that decision as the domestic market which is still relatively strong. The markets are pricing a 25% chance that the Australian interest rate will rise tomorrow and that is maintaining strength in the Aussie Dollar; just what you don’t want to hear if you are importing from or moving to Australia. The play off is that a strong economy is a lure for potential migrants whilst it has the undesirable effect making the currency less affordable. Oddly enough, the potential for a slowdown as China tries to rein in its economy is probably your best ally if you need to buy cheap Aussie Dollars.
It will have slipped past many market watchers but Canada also announced its economic growth rate on Friday. The 0.3% month on month rise was overshadowed by the figure from America and that is probably fitting when you consider how influential the US economy is on Canadian exports. The CAD is a tad weaker this morning than it was for the bulk of last week; making life a little easier for those importing from or migrating to Canada.
In other news, the US Dollar - Japanese Yen exchange rate was in the spotlight on Friday when the rate jumped by 0ver 1% in a very short space of time. Orders were triggered and the markets scurried around looking for where the Bank of Japan was intervening but it appears a technical glitch caused the spike. I am sure those whose orders were triggered won’t shed too many tears over that. Opportunity was knocking.
Finally today’s date is one of those palindromic dates 01/11/10, look out for the conspiracy theorists and the quotes accredited to Nostradamus. Hopefully the world won’t end and our computers won’t crash and we’ll all be here tomorrow. In the meantime, pinch, punch first day of the month and no returns. Pinching and kicking is not allowed from this point onward. The judge’s ruling is final.