Last week was an odd one for the markets as they largely sat around awaiting developments. We are all awaiting an announcement from the US Federal Reserve which is forecast to expand its asset purchase program in order to reinvigorate the flagging economy. Not everyone is convinced this is a good idea but it has certainly reinvigorated US Dollar sellers and share buyers. There was great excitement ahead of Friday’s speech from Federal Reserve chairman, Ben Bernanke, where he was expected to give some time frame for the implementation of another round of quantitative easing but he was far less specific than that and this caused a certain amount of US Dollar buying as investors sold out of some of their more speculative ventures away from the USD.
We are also awaiting this Wednesday’s announcement of the results of the UK government’s comprehensive spending review. It will be very interesting to see if any of the news reports which claim to know the truth, are even close to the facts and I am sure the next three days will be full of further speculation. In the interim, Sterling is trapped in a narrow range against almost all other currencies. Don’t expect any change in that until the details are make concrete on Wednesday.
Euro traders saw Europe’s shared currency weaken on Friday as traders took profit on the strength the Euro had enjoyed over the last couple of weeks. The fact that the European Central Bank has made no moves to increase their involvement in the Eurozone cash supply has caused a degree of positiveness towards the Euro and we can see that in all Euro related exchange rates. Whether that continues after the events mentioned in the two paragraphs above is open to debate but there is probably more room for the Euro to weaken that strengthen in the weeks ahead. Meanwhile, a debate is growing within the Eurozone over whether sanctions should automatically be imposed on countries which stray from the stability pact rules or whether there should always be a debate on the subject. Germany, Holland and the Scandinavian countries think it should be automatic but they are probably the least likely to fall foul of the rules and the countries most at risk of breaking the rules are vehemently against a change to automatic sanctions. No surprises there then.
Overnight news that New Zealand’s inflation rose to 1.0% last month was met by NZ Dollar strength as it enhances the changes of further interest rate hikes from the reserve bank and the attractiveness of Australian and New Zealand interest rate yields is keeping up demand for both currencies amongst international investors and institutions.
Elsewhere, the Bank of Canada is due to announce its interest rate decision tomorrow. No change is forecast but there is a feeling the BOC will start to speak about interest rates with a more hawkish tone. At a time when the US Dollar is under the cosh, it would be hard for the Canadian Dollar to make any significant headway but it cannot be ruled out.
And finally, the Food Standards Agency, another government sponsored worry-tank, says that children should not pick wild fruit on their own. They fear that they may eat berries without washing them and GOSH that would be awful wouldn’t it. Perhaps the agency could devise some form of anti bacterial spray that kills 99% of hedgerow germs just to further exacerbate parental paranoia. After all, we don’t want children to learn common sense and responsibility do we; otherwise what would all the taxpayer funded quangos do with their time!