Daily currency update courtesy of Halo financial

(Catharine Higginson) #1

The Business Cycle Dating Committee of the National Bureau of Economic Research (they really to work on an acronym) announced yesterday that the US recession ended in June 2010 and was the longest and deepest since World War II. Someone needs to tell US employers though because whilst the decline in economic activity may be over, the growth in employment has yet to start and home builders reported last night that their confidence remains at an 18 month low, so they are not feeling it either. The US Dollar had a mixed day yesterday after these reports and ahead of today’s crucial interest rate announcement by the Federal Open Market Committee (FOMC).

The decision is undoubtedly going to be an ‘On Hold’ one where US interest rates remain at a base of 0-0.25% but the announcement is more interesting than that. Will they expand the length, breadth or size of the assets purchase plan (QE) or will they leave it alone for the time being? That is the important issue and everyone has a view. We will all be put out of our misery at 19:15 UK time.

Sterling was shunted hither and thither by a lack of data really. We did hear that lending to business and to home owners slumped last month. Mortgage lending is at a 10 year low and the contraction in lending by banks to businesses is still shrinking; not what Clegg-eron would want to hear as they try to keep economic activity buoyant whilst cutting government costs. The Pound remains towards the bottom of recent ranges ahead of this morning’s release of public sector debt data which may well be rather positive and should hopefully start to show some signs that the initial cut backs are working. The Pound could well have a better day.

As for the Euro, well the two-speed Eurozone is still a problem and Ireland; one of the most worrying of the Eurozone economies, awaits today’s auction of three and eight year bonds which ought to be well supported because they are having to pay a very healthy risk premium in order to attract investors. Other than this, the markets will be waiting for tomorrow’s release of the Eurozone consumer confidence index which is likely to remain pretty poor.

This is a big week for Canadian data; as well as a slight rise in crude oil prices which will always boost the Canadian Dollar, yesterday’s wholesale sales showed a fall in output in July as vehicle sales declined and there are mixed feelings about today’s release of the August inflation data. The previous three months have given us an annualised inflation level of 1.4%, 1.0% and 1.8%, so it is a very volatile index. I am not surprised that few analysts are prepared to stick their necks out and forecast a level for this one. We also get a speech from the Canadian Finance Minister today and retail sales data tomorrow. Busy busy busy and most likely volatile as well, so placing automated orders to capture the best part of this volatility is your best better whether you are a buyer or seller.

This isn’t a big week for Australasian data but there is a little divergence going on between the New Zealand Dollar and Australian Dollar; due largely to the disparity between interest rate expectations. We are expecting further interest rate hikes from the Reserve Bank of Australia but it is far less likely that their Kiwi counterparts will feel inclined to hike rates any time soon. As a consequence, the Australian Dollar is threatening to strengthen while the Kiwi Dollar is trading a narrow and slightly negative range, making life easier for NZ bound migrants than those heading for Australia.

That is about it for news. Yesterday wasn’t a dynamic day for data but this evening’s US interest rate decision will overshadow anything else that the day has to offer. I hope yours is a good one.

I’ll leave you with news that even the children are suffering in this recession. Apparently pocket money levels are at a 7-year low as parents cut back on non-essential expenses. I am sure the children don’t see this lifeline of funding as non-essential but it is a lesson in real world economics if you use it right. And if you haven’t cut your children’s pocket money yet, it may be worth googling the full report to use as a bargaining chip because children are the best emotional blackmailers in the world - as all parents know but don’t like to admit.