FX Market Overview

Yesterday the Thai government was overthrown, residents in Venice needed a snorkel to get to work following the flood and riots kicked off in Zimbabwe over food shortages. You would have expected something of a similar magnitude to have occurred in Britain after seeing the massive fall in the pound but everything seemed in order. England even managed a favorable draw for the next rugby world cup in New Zealand yet the pound fell further.
December started badly for UK markets yesterday with the FTSE falling over 5% and the pound losing 3.5% against the euro and dollar. With the pound so unpopular at the moment and the economic fundamentals poor it is difficult to see where renewed sterling buying interest would come from. This outlook is also supported by the charts where the technicals suggest the pound will continue to be shunned at the expense of the euro and US dollar.
Yesterday afternoons only figure of note was November ISM manufacturing which recorded another big contraction in activity. The breakdown of the number which was the weakest in 26 years indicated more employment lay-offs and weaker growth in Q4.
Overnight the Reserve Bank of Australia (RBA) surprised the market by cutting interest rates by 1.00% rather than the expected 0.75%. This brings interest rates down to a six-year low of 4.25% in the largest series of rate cuts since the last recession in 1991.
This morning the only man who correctly predicted the Bank of England would cut interest rates by 1.5% last month, London School of Economics Professor Willem Buiter predicted another 1.5% cut in interest rates on Thursday. This would take the “Bank rate” to an eye-watering 1.5% a level we think will be reached in January rather than December. The market consensus is for a smaller 0.50% cut but Buiter got it right last time so let’s wait and see.
October Eurozone producer prices this morning fell at their sharpest rate on record to add to the slew of horrific Eurozone data to grace the newswires in the past week. The market is expecting the European Central Bank (ECB) to cut interest rates by 0.5% on Thursday but I feel this could be as much as 1%. The ECB are behind the curve when it comes to interest rate decisions and a big catch-up is required to make up for the erroneous interest rate cut in July.
A 38-year old Cornish man has admitted two counts of common assault after he attacked his girlfriend for wearing big Bridget Jones-style knickers instead of a G-string. The man who says he eats 10 Mars bars a day has claimed a lack of sugar prompted him to attack.