Daily Currency update for SF members courtesy of Halo Financial

(Catharine Higginson) #1

BEEEEP. You have reached the main switchboard for Number 10 Downing Street. The British Government is not available right now; we are still negotiating our existence so please leave a message after the tone and David Cameron or Gordon Brown will get back to you as soon as they have decided who is in charge. BEEEEP.

I am sure you don’t need any information from me about the UK election or the lack of a decision about who will be the Prime Minister and what concession he will need to make to get the keys to 10 Downing Street but the effects in the market are slightly different to the ones being voiced in the press. Sterling certainly slumped last Thursday night and Friday morning as it became clear we were in for a few days of wrangling over who will form the government and it remains weak this morning but it has stopped falling. In fact the pound fell a full 6.5 cents against the US Dollar in 24 hours offering a fantastic opportunity to anyone with US Dollars to sell. The Dollar has retreated a little this morning though after the developments in Europe and the UK over the weekend.

Reassuring noises from the Tory and Lib Dem camps helped calm traders’ nerves but until we see the nature of any agreement, Sterling will remain weak. That has to have some bearing on the Bank of England which delayed its interest rate setting meeting from the scheduled 6th May because it clashed with Election Day. They meet today to set UK interest rates and the obvious outcome with inflation worryingly high but economic growth barely visible is that they will leave the base rate at 0.5 percent; just as it has been for 14 months. It is also highly unlikely they will make any formal announcement of the rationale behind their decision while the LibDem v Conservative horse trading continues.

That decision would be in line with the European Central Bank which left its base rate alone when it met last week. However, the ECB’s reasoning relates to its domestic problems. We had a weekend announcement of the conclusion of the agreement between EU members and the International Monetary Fund not only to bail Greece out but also to make half a trillion Euros of EU funds and €250 billion of IMF money available to provide stability in the Euro. That’s a whole lot of money; it controversially includes £8 billion from the UK and it is widely seen as a clear warning to the financial markets not to take advantage of the Euro’s weakened state because the EU will not want to actually use the funds unless they absolutely have to. German Chancellor Angela Merkel has already suffered at the hands of the electorate over the unpopular Greek support package when her party was beaten in a local election n at the end of last week. The Euro appears to have stabilised a bit over the weekend as well so perhaps the threat is working.

On the other side of the Atlantic, the US employment numbers were Friday’s major news. Better than expected monthly payroll numbers sadly didn’t translate into a drop in the percentage of unemployed Americans but the trend in the monthly numbers was enough to let the US Dollar consolidate its position after a very strong surge during the week. That bout of USD buying was mostly triggered by safe haven purchases amongst investors seeking a safer place than the UK or EU but the nervousness surrounding Greece and the potential for a wider EU cash crisis prompted traders to be more risk averse.

If you thought last week was volatile, you probably haven’t seen the market at is stormiest best yet. With the EU trying to calm the waters, Japan’s central bank injecting cash into its system to try to support the Yen, Britain finally finding out who is going to be our government and what policies remain after the negotiations and the US Federal Reserve meeting as well, this is going to be a monster week of crashing and thrashing currency movements.

The overnight news that Australian business confidence had declined in the last month offered justification for the Reserve Bank’s recent decision to keep the base rate on hold and suggest there may be little appetite for any further hikes for quite some time. The Australian Dollar remains strong though as investors like the high interest rate yield and have more confidence in the Asian and Australasian economies than the Western hemisphere ones.

The week continues with UK news tonight on the housing market and retail sector and then we carry on with Chinese inflation data which will have an effect on the Australasian and Asian currencies. Tomorrow brings German inflation and British industrial production data and Wednesday gives us UK unemployment figures and economic growth data from the Eurozone. That will be very interesting because the previous data showed only the tiniest level of growth so a dip back into contraction would be very bad news for the Euro. The week concludes with a Friday awash with US data including retail sales and industrial production.

It will be big and it won’t all be clever but there are immense opportunities for everyone trading any currency pair to make some significant gains through sensible timing and structured targeting of exchange rate levels.

And finally, I have a very happy Dealing Director on my hands after Sam Stanley’s beloved Chelsea won the Premiership with aplomb yesterday. If you are not a Chelsea fan, feel free to offer him abuse during the day.

But absolutely finally, the entrepreneur of the year award has a new contender. Sofus Gustavsson who lives near the troublesome volcano, Eyjafjallajokull (which is probably worth a record score in scrabble now that they have changed the rules to include proper names), has decided to bottle the volcanic ash and sell it on the internet to raise money to fund the cleanup campaign in Iceland. But before you go and google it, if you thought it might be collectable, beware because a second volcano; the more pronounceable Katla, is highly likelt o erupt in the coming weeks. Air travellers beware.

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