Daily currency update courtesy of Halo financial

(Catharine Higginson) #1

As the Pope landed in the UK yesterday he was greeted by Her Majesty Queen Elizabeth II. They bravely allowed Prince Phillip to meet the Pope as well. It appears the Pope escaped unscathed but the leader of the Scottish Tory part was asked by the Prince if she was wearing Tartan knickers. The Pope is due to meet London Mayor Boris Johnson today; what could possibly go wrong!

But a different kind of QE2 was vexing the markets. The US, like many other countries after the collapse of Lehman Brothers, embarked upon a sequence of assets purchases through what has commonly become known as Quantitative Easing. Making cash flow easier through adding extra quantity of funds to the market in order to keep the cash registers chinging was part of the plan and cutting interest rates to virtually 0% was the other part. Well the US has maintained interest rates at near zero for a couple of years but is now seeing the economy slowing with a potential for it to fall into another recession so what are they to do in order to keep the malls busy.

Well various members of the Federal Reserve have suggested further quantitative easing may be necessary and as this would be the second round of QE, it has obviously been dubbed QE2 by traders who love an acronym when they can form one. Yesterday’s data will have added no clarity whatsoever to the plans as the trade gap widened but fresh unemployment claims stayed stable and while producer prices rose by a widely forecast 0.4 percent. No new news really so we remain in fairly tight ranges for now. There is a chance that today’s US inflation data will alter that position so US Dollar buyers and sellers would consider their options before the afternoon trading session.

Other countries have adopted different tactics, Japan is intervening to weaken its currency, Europe has sat on its hands for a couple of years, the UK is trying to keep things busy while cutting the cost of government in order to try to stave off further tax rises but China; which has a ridiculously buoyant economy, is trying to slow things down by letting their currency strengthen...marginally. The real story in China is behind the scenes because the vast majority of recent growth has been government funded so they can turn the taps off in a trice if they wish to do so. The Currency adjustment is so marginal as to be barely lip service to allay demands from the US and Europe for further Yuan strength. The US is so exasperated by the glacial pace of China’s currency advance that they are taking two cases of trade restriction to the World Trade Organisation. I can’t see it worrying the Chinese but it does give some indication of just how tense things are between Washington and Beijing.

The Pound wobbled as UK retail sales data disappointed the markets and the downward revision to the previous month’s data didn’t help. However consumer expectations of inflation have risen from 3.4 percent to 3.5 percent. Clearly the recent media interest in higher commodity prices and headlines of 10% rises in cotton products are causing some concern. You may be delighted then to hear that oil and gas both slipped yesterday. Pump prices won’t change but you knew that didn’t you.

The rest of today’s data is slim; US inflation is the biggie but we also get a consumer sentiment survey from the university of Michigan. So I guess the emphasis is all on the US and this afternoon’s numbers.

And finally, it is sad to see Andrew Flintoff announce his, injury induced, premature retirement from cricket. It is always sad when someone with such natural talent can’t continue to delight and entertain but the man has a very distinct personality which means he at least has a career in the media after the pads are stowed for the last time. Thanks Freddie it was great while it lasted.