Daily Currency update

There was a distinct lack of data to tempt traders into the markets yesterday. The Bank of England minutes offered no more than we had
forecast; that being an 8 to 1 vote in favour of leaving interest rates
on hold and no change in the level of quantitative easing. Andrew
Sentence was the dissenter as expected. However, the rumour mill ahead
of the release of the minutes was that there might have been a three way
split in the voting with someone; and various names were suggested,
voting for further expansion in the quantitative easing or even another
interest rate cut. The fact that all of this was utter tosh meant the
Pound, which had weakened ahead of the announcement, strengthened by a
cent against the US Dollar and Euro in the 10 minutes after the release.
Sterling didn’t make any further gains for the rest of the day. In fact
it has traded in very narrow ranges for the whole of the last 18 hours
or so.

Data-wise, that was pretty well all we had to look at and the markets traded in narrow ranges for the rest of the day. We did get a sharp
rise in US mortgage applications but the nitty-gritty of the data showed
that most were remortgages so the overall effect is largely neutral.
The US Dollar, understandably, ignored the numbers and carried on in the
same tight ranges it has occupied for the whole of the last week.

Elsewhere, the Australian Dollar is weaker ahead of this weekend’s closely fought Australian election. The miniscule margin between the
parties shown in various opinion polls suggests this cold well be a hung
parliament with perhaps the Greens holding sway. One of the significant
features of that outcome would be the renegotiation of the mining tax
which the greens want to raise back up to the 40% level that was
proposed by the previous prime minister and led to his downfall. A few
volatile days are inevitable for the Aussie Dollar as we head into the
weekend and as the results come through.

So while the Australian Dollar is weaker, some of that money appears to be flowing into the New Zealand Dollar which is having a small purple
patch. That is a tad surprising in light of the Governor of the Reserve
Bank of New Zealand, Alan Bollard announcing a reduction in the RBNZ’s
inflation forecast to a 5% peak. That reduces the likelihood if higher
interest rates and should therefore reduce demand for the NZ Dollar.
Clearly the election effect is shunting funds from nearby Australia into
New Zealand which means this could be a short lived rally. NZ Dollar
sellers should be thinking about their requirements.

In Europe, newspaper reports of rising tensions in Greece have kept the pressure up on the Euro which lost ground against the US Dollar
throughout the day. The fact that Greek austerity measures are impinging
on every aspect of Greek life is seen as a warning that further social
unrest could follow and that would make it even harder for the Greek
authorities to muster the cash to pay back IMF and EU loans. Reports
that the measures have pushed unemployment to 70% in some areas will not

Today’s data is not overwhelming but the UK retail sales, mortgage approvals and government debt levels are very worthy bellwethers to the
state of play in the UK economy. We are expecting a fairly sharp
decline in retail activity as Brits continue to tighten their belts and
anyone who has tried to get a mortgage will not be surprised that
approvals are likely to have declined significantly as well. The old
adage that a baker is someone who will lend you his umbrella but ask for
it back the minute it starts to rain is being highlighted in these
figures. The high levels of deposit requirements and the alarmingly
high interest rates, when the BOE base rate is at an all time low, are
both factors.

And the day is rounded off by leading indicators and wholesale sales data from Canada as well as a US business sentiment index along with the
leading indicators index. This latter report is watched very closely by
the Federal Reserve for signs of potential economic growth or

And finally, I know that Friday the 13th is supposed to be dangerous so if I were a 13 year old boy and the time is 13.13 Hrs on Friday 13th,
I think I would have tucked myself in a safe place under a duvet or
something. Not so a 13 year old boy in Lowestoft, Suffolk who was struck
by lightning at that time on that day whilst watching an air
show.......in a lightning storm...holding a metal posted umbrella. He
will apparently make a full recovery but there are some lessons to be
learned here.

But while we think of that, another ‘young man’ is in the news. At the age of 21, Bill Millin stood on Sword beach on D Day and played his
bagpipes to rally the troops. German soldiers who were later taken
prisoner said they didn’t shoot him because they thought he was just
plain mad but his actions have become legendary in the British military
and amongst the residents of Normandy. He died peacefully yesterday aged
88 and a statue is to be erected in his memory in
Colleville-Montgomery, in Normandy. A fitting tribute to a true