Daily currency update courtesy of Halo financial

(Catharine Higginson) #1

Ask kids to vote for whether they should have more toys and sweets and you know the answer you will get. So when you ask the recipients of most EU funding whether the budget should be increased, guess what they voted for. Thank heavens the major contributors to the EU coffers; most of which are making cuts at home, are making plans to curb the excess but they are still likely to agree a 2.9% increase. Why, at a time when everyone else is tightening their belts should the EU not be cutting their cloth accordingly?

However, the EU leaders have agreed on a plan to keep a permanent fund in place to support ailing Eurozone states and a series of penalties which ‘may’ be used if individual member states do not adhere to the Lisbon and Maastricht treaty rules. The fact that, to date none has ever paid a penalty does make the agreement look a tad hollow though. In normal times, such an announcement would have strengthened the Euro but if evidence were needed that the Euro is a slave to US Dollar activity, the absence of market reaction to the EU announcement is pretty convincing proof.

In fact the US dollar is the centre of attention for all manner of reasons. The USD has hit a fresh low against the Japanese Yen overnight as traders chose to close out some ‘Short’ Yen positions ahead of the month end and ahead of today’s US economic growth data. Forecasts are mixed for this announcement and the uncertainty has caused a wave of US dollar buying as investors move into US Treasuries - a safe option ahead of such a risky trading period. The GDP data should, in line with the UK data earlier in the week, show a slowing but still positive economy. That may well cause the Federal Reserve to hold off from expanding the US money supply when they meet next week. Quite how that will play out in the value of the US Dollar is open to very mixed debate. We appear to be on the cusp of a change of attitude where, rather than selling the US Dollar on good news, traders may start to buy into the potential for US economic recovery. On the other side of the argument are the naysayers who see nothing but doom and gloom for the US Dollar but they have been saying the same for the last 12 months and we haven’t seen that kind of apocalyptic decline in the US Dollar’s value yet. As a side note, there is a lot of speculation that the Bank of Japan will use the immediate aftermath of next week’s Federal Reserve meeting to intervene in the markets to try to weaken the Yen.

Elsewhere, the Pound had a better day yesterday, closing up against most currencies and testing the tops of its ranges against the Euro, USD, Canadian Dollar and the Australasian Dollars as well. We can’t yet say that the UK economy or the Pound are out of the woods yet so this may well be the best we are going to get for Sterling sellers in the medium term. However, if there are enough crossed fingers around the UK amongst migrants seeking to leave and importers desperate to pay invoices at reasonable levels, then we could see a break to higher levels. But, just as the Euro is a slave to US Dollar movement, so is Sterling, so it isn’t just about what happens in the UK.

As well as the US economic growth, today’s data dish is piled high with juicy morsels. We get UK lending and mortgage data, Canada’s GDP data, EU inflation and a full platter of US numbers on the personal income and expenditure front as well as business sentiment indices and a few other pieces as well. What with this being a major data release day and the last day of the month, we can expect significant volatility today. That is great news for both buyers and sellers so if you have a short to medium term requirement, it is certainly worth taking a close look at your needs in light of today’s potential spikes and troughs. Your Halo Financial consultant will be able to expand upon what I can cover in this small report.

And then it is the weekend, Halloween weekend even. Ghosts, kids begging on doorsteps and drunken people in fancy dress. It all sounds so very Dickensian. I hope yours is a good weekend and you survive the ‘demands with menace’ which progressed from being the modus operandi of the Kray twins and has become the crime of much younger perpetrators. They call it ‘trick or treat’. Enjoy it and let’s all catch up in November. No I don’t know where the rest of the year went either.

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