Woah; it was all kicking off in Britain yesterday. We don’t do street protests quite as passionately as French students and farmers but we do write great letters to the newspapers. And after the announcement of some of the harshest spending restrictions since WWII, those letters will be arriving in editors’ inboxes by the thousands.
However, the cuts were no worse than many had forecast and in some ways they may even have been less radical than many had feared. You could argue that Mr Osborne’s cost cutting measures could not have arrived in more timely fashion; coming as they did on the day when it was announced that UK government debt rose to a record £842.9 billion. That’ a borrowing level of 57.2% of the value of everything the UK produces and spends in a year. It is a frightening level of debt and Sterling slipped on that news but despite the pound whip-sawing around a bit during the day, it ended on a similar level to the two previous days. As well as the Chancellor’s announcements, we saw the minutes from the last Bank of England interest rate setting meeting. As expected, the usual suspects voted for further monetary expansion and interest rate hikes whilst the other 7 members of the monetary policy committee voted for the maintenance of status quo.
Elsewhere, the US Dollar had a very mixed day. Investors are torn between being optimistic enough to sell their safe and reliable US Dollars in favour of higher rewards but with high risk elsewhere or staying in the safe haven of the US treasury certificate until someone somewhere sounds the all clear and they can emerge unscathed. Each day brings a new wave of Dollar buying or selling and we had a bit of both during the day yesterday but the overall theme was US Dollar weakness. That was further confused by the US Treasury Secretary, Tim Geithner who said that the Euro, Sterling and the US Dollar were “in alignment”. We assumed he was not referring to some astrological effect but to the relative values of these currencies. Few would agree with him but it does suggest the US is pretty sanguine about the state of the foreign exchange market and that could well be US Dollar negative.
In an almost direct mirroring of the US Dollar’s movements, the Euro ended the day slightly stronger. The European central bank did little during the day but there is a feeling they are going to have to be less placid and more vocal in the months ahead if their desire for a weaker Euro is to be met. EU exporters are clearly desperate for a fall in the value of the Euro and would welcome some assistance from the ECB.
The Canadian Dollar was in the spotlight as, a day after leaving their base interest rate on hold, the Bank of Canada released its quarterly monetary policy report. They downgraded their growth forecasts and the tone of the report was clearly designed to calm recent confidence in the Canadian economy and therefore the Canadian Dollar. Some weakness in the CAD may flow from this but a lot depends on what happens Canada’s dominant export market; America.
The Australian Dollar is being closely watched after Chinese inflation rose to the highest level in nearly two years. Fears that the Chinese authorities will take further measures to slow growth weighed on the Australian Dollar, which is understandable when China is such a major export market for Australian commodities. However, the Aussie Dollar is also the target of choice for international investors in search of higher yielding bonds in relatively stable economies so there is a whole heap of volatility on the cards for the Australian Dollar. That’s great news if you need to buy or sell Aussie Dollars because the Sterling - Australian Dollar exchange rate can easily fluctuate 1 to 2 percent in a day and 3 or 4 percent in a week.
Today’s data diary is a little less dramatic but there are a few choice cuts for those involved in the Euro, Sterling or US Dollar. And there will inevitably be a lot more spending cuts analysis broadcast and written during the day. This might be of either the factual or the ‘tosh’ variety but it all gets equal airplay and column inches.
I’ll leave you with the news that X factor judge Cheryl Cole met her waxwork model at Madame Tussauds in London yesterday. As I saw the two standing side by side on the news report I felt bad for doing it but couldn’t help wondering which one had the highest IQ.
cat (Catharine Higginson) #1