Daily Currency update for SF members courtesy of Halo Financial


(Catharine Higginson) #1

As I write, the election hangs in the balance and parliament may still hang when all the votes have been counted. Oddly enough, it is looking like the result will be very much in line with the polls before the campaign started which begs the question, were the leaders’ debates of any use whatsoever and whatever became of Cleggmania? However, whilst the UK news machine is quite rightly absorbed in this parochial story, the rest of the world is focussed firmly on the Eurozone and all the problems it faces as a result of the Greece story. You are probably bored to tears of reading about Greece and all its problems and, to be fair, I am bored of writing about them but it cannot be ignored that those problems may well have consequences for Britain and the new Prime Minister; whoever he may be.

The latest is that further strikes have bush-wacked the Greek economy, the G7 will hold a video conference today to discuss the issue and central banks as far afield as Japan and Australia are warning of the implications of Greece’s problems spreading across other countries. That spread is likely to some degree due to the immense amount of money Greece owes to the banks of other countries and the similarly interdependent position of countries like Portugal, Italy, Ireland and Spain with the larger and more successful economies of Europe like Germany, France and Britain. The fact that the UK has a very successful financial services industry is great for jobs and overseas earnings but, as we found out in 2008 when the credit crisis burst forth, that means that the city of London is also exposed to risk in very many areas. So it was no surprise to see Sterling weaken a tad yesterday as a result of Britain’s links with EU debt and as the Election Day arrived.

Yesterday’s data releases were all but ignored in the election melee but there were some significant ones. The US weekly jobless claims numbers were rather encouraging and point to an improvement in the monthly employment report which we will see today. Many analysts are hopeful of a fall in the unemployment rate from its current 9.7 percent. However, whilst the US non-farm payroll number has always been the most significant market mover on the day of its announcement, this time it has been overshadowed by events in Europe.

Stock markets around the world dropped sharply last night as traders veered away from anything with any element of risk. The US Dollar strengthened as the safety of the US Treasury certificate lured many investors in. The Bank of Japan and the Reserve Bank of Australia voiced their concerns that the Greece issue may stifle credit markets in the way that the Lehman Brothers collapse did in 2008. So concerned are the Bank of Japan that they committed 2 trillion Yen into the markets to ensure sufficient liquidity. Whether other central banks will be equally moved to add liquidity is another matter and the actions of the BOJ come at a time when the likes of the US Federal Reserve, the European Central Bank and the Bank of England were hoping to reduce their support for the financial markets.

If you thought the recession was behind us, I am sorry to say, it may not be dead and gone just yet. The problem lies in the nature of the credit markets. Bank A may lend to Bank B who lends to Bank C but Bank C may also be lending to Bank A and Bank B may be heavily indebted to Bank D as well. This is also true for countries and the whole world wide web of debt hangs on the premise that each is capable of repaying everyone else. If one bank or country fails to keep its part of the bargain, the whole pack of cards is in danger of collapse.

So we head into the weekend not knowing who will be the next resident of 10 Downing Street, not knowing whether the €110 billion bailout for Greece will be enough, not knowing whether one of the other Mediterranean countries is preparing its bid for EU support and not knowing whether we will get rain or not; although that last one is apparently easier to predict.

What we do know is that the Pound is still offering some of the best levels for Sterling sellers in 9 Months, that the Euro is the cheapest it has been for US Dollar sellers since March 2009 and that the Australasian currencies may well weaken a tad in the days ahead if safe haven buying is all the rage and whilst the Canadian Dollar is still looking good now, it may well weaken as oil comes under pressure. Sadly for those with Sterling in their pockets, even if the Aussie and Kiwi Dollars lose strength, the pound is likely to lose strength faster because the UK economies is far more reliant on and tied to the European Union countries.

It’s a very cloudy view both weather-wise and economy-wise right now and risk management is the key to being currency-wise. If you have a short term requirement, a conversation with your Halo Financial Consultant will un-muddy the waters and offer a suitable strategy.

And finally, Nick Clegg has been quoted as saying something along the lines of, “The party that wins the largest number of votes and the most seats has the moral right to govern”. I wonder if that is how he feels this morning or whether the lure of some sort of control will allow for a recanting of that particular comment. This will be one weekend when the news is worth watching. I hope yours is a good one.








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