The rout of the US dollar continued after a surprise decision by the Monetary Authority of Singapore (MAS) to tighten its monetary policy. Risk is back on. Stock markets are rallying higher underpinning a surging Euro, NZ dollar, Canadian dollar and Australian dollar which fell short of parity against the US dollar by a mere 7 pips ($0.9993 the high so far). The Canadian dollar reached parity against the US dollar for the first time in 6-months.
The pound finally got some semblance of support this morning after hawkish Bank of England member Andrew Sentence insisted the UK economy is in good enough shape to warrant an interest rate hike. Mr. Sentence has been the lone voice voted for a rate hike since June this year, so this is no surprise. He noted his concern over the Bank of England’s credibility given their reluctance to raise interest rates even though inflation was significantly above their 2.00% target.
I have to agree with Mr. Sentence about a small interest rate hike. Not because I am concerned about inflation but more as a signal to the markets that the UK have turned a corner and as such a small rate hike is warranted.
It’s academic whether UK interest rates are 0.50% or 0.75%. We all borrow at significantly higher rates (if we are lucky enough to get funding from the lethargic banks) so it’s not going to send the housing market and economy spiraling lower. Instead it will bang a gong and announce that the worse is over. Don’t hold off on those decisions any longer. Get out there and buy that house before interest rates rise further, invest in that new machine and hire that worker - I wish it were that simple.
After I finish writing this report I am off shopping to stock up the cellar with bottled water, tinned food, candles, rope, matches, duct tape, shot gun cartridges and gold bullion.
It’s not tight monetary conditions which are holding back the UK economy but rather insistent gloom from Bank of England Governor Mervyn King et al who are trying to prepare us for Armageddon - it’s working Merv, you are convincing the country it’s hopeless. We all need NASA to help to rescue us from a deep, dark hole after they are finished with the 33 Chilean miners. Prime Minister Cameron is hosting Arnold Schwarzenegger in Number 10 today, so that’s a good start.
Maybe George Osborne should take a leaf out of the Thai Finance Minister who has appeared on a soap opera to promote a plan to help the public repay their high interest debts. I could see George leaning against the bar at The Queen Vic explaining child tax credits to Phil Mitchell.