A new threat is spreading across Europe and it sounds like the sort of name an evil organisation would be called in a James bond Spoof. But SLUDGE isn’t run by a master criminal with a white cat, a private Island and an unlimited supply of bikini clad bodyguards; no this sludge is a sheet of toxic slurry spreading through Hungary and making its way into the Danube. Let’s hope the workers who are frantically trying to mop up the Alumina laden muck are successful.
The Pound shuddered lower yesterday as rumours circulated that the government may restructure its plans for deficit reduction. The Comprehensive Spending Review (CSV), due in a couple of weeks may be worded in order to lessen the impact on international confidence in the UK. Sterling dropped across the board on the news but that decline was also helped by nervousness ahead of today’s Bank of England interest rate decision and the weakness in the US Dollar. No one is expecting any change in the base interest rate today but there is a slim chance the Monetary Policy Committee may discuss further quantitative easing even if they don’t act on it. Obviously we won’t know what was discussed until the minutes are published in a fortnight. It apparently takes them two weeks to decide they agree on what was said.
The weakness in the US Dollar came in spite of adjustments in growth forecasts from the International Monetary Fund which put US growth at 2.6% next year ahead of the UK and Europe on 1.7%. The slightly erratic ADP employment report posted a poor result but that wasn’t the Dollar’s real problem; more likely the markets are concerned over the potential for further economic contraction and continued weakness in the employment and housing sectors. That heightens the risk that the Federal Reserve will print more money to keep the tills ringing and it is this which has caused the US Dollar to slip to its weakest against the Euro in 8 years and the weakest it has been against the Japanese Yen in 15 years. This Friday’s US employment report is crucial to the path of the US Dollar from here; a positive figure will give traders the incentive they need to buy back some Dollars and take profit. It may be a short term relief to USD sellers but it will be an opportunity nevertheless.
The US Dollar is near a 27 year low against the Australian Dollar as well. The Aussie was boosted by better than expected employment data which reignited talk of further interest rate hikes in Australia and that is like a flame in the night to the investors who flock to the Australian Dollar like moths when the allure of interest rate yield is not clouded by fears over currency depreciation. Sterling also slipped after having a reasonable few days against the Aussie Dollar.
The Euro for its part is still looking like an anomaly. Economic growth data was right on the general market forecast although on the positive side, German factory orders increased more than expected but on a day when Fitch downgraded Irish sovereign debt and with fears of further credit ratings downgrades for Ireland and Spain ringing in investors’ ears, slightly better German data would not in itself be enough to cause such solid Euro strength. It appears certain that the Euro is strengthening in reaction to negativity towards the US Dollar more than it is a reflection of confidence in the Eurozone. That is great for Euro sellers at the moment but I would warn against complacency; when the currency is being bought largely on a reaction to external vents it will take barely a hint of a rumour to unwind that strength. The European Central Bank announces its interest rate decision at 11.45 GMT but no change is forecast in that decision. The press conference at 12.30 GMT will be more telling as journalists get a chance to test the ECB over recent Euro strength and any plans they may have for further bond purchases or other forms of quantitative easing. At a time when the US Federal Reserve has signalled it is likely to expand the money supply, certain members of the Bank of England have voiced their support for such a plan and the Bank of Japan has already done so, the ECB’s silence on the issue is maintaining strength in the Euro. I am sure German manufacturers will be hoping they break their silence on the matter and leave the threat open for EU QE to allow the Euro to weaken.
The ECB and BOE interest rate decisions come after UK manufacturing data, which we believe could well be better than forecast; so the support that has eluded the Pound for the last couple of weeks could well be found this morning.
And finally, Emma Thompson has been in the news complaining about the way that teenagers speak. It is a sure sign of middle age when you start to concern yourself with such things but the overuse of the word ‘like’ is particularly vexing Emma. My personal dislikes are the overuse of the word, ‘basically’ and the insertion of ‘literally’ to emphasise everything. I am also concerned about ‘well’ being used instead of the perfectly suitable ‘very’. I even overheard “Basically it was like...y’know... WELL bad innit” in Clapham. If he had thrown in a ‘Literally’ and finished it off with one of those “...it was sooo not good” it would have been the vast majority of my pet hates all in one phrase. Oh and why can’t we say You, Us and Me anymore? ‘Yourself’, ‘ourselves’ and ‘myself’ don’t make statements any more polite. “ That’s... like... basically ... literally.... sooo ...not right for yourselves.....innit?”