FX Market Overview

Yesterday was apparently the day to knock Britain. The United Nations says we are cocaine central with more users than anywhere else and whilst that is alarming, it may well be true. The Organisation for Economic Co-operation and Development (OECD) sees the UK sinking into greater debt than any other developed country next year which is not so surprising when the UK government (us in other words) owes £774.8 billion. The OECD foresees growth at very minimal levels 2010 and forecast UK unemployment rising to 9.7% next year; that’s double 2005 levels. Can someone pass the headache pills please?
This report came on the day that the Bank of England governor had another dig at the chancellor; this time over the lack of communication over proposed banking system revisions. There is thinly disguised and widening gap between the BoE and the Treasury and that isn’t good for Britain’s international reputation. But thank goodness someone else was taking flak’ the International Monetary Fund says Ireland has the sickest economy of all. Now for anyone under 20 years of age, I should explain that when the IMF says ‘sick’, they mean ‘unwell and not sick as in ‘well wicked’. The IMF forecasts that Ireland’s economy will contract by 13.5% between 2008 and 2010.
The currencies barely reacted to all this finger pointing although the Pound did slip a little from the highs it achieved in previous days and looks set to decline a tad further in the days ahead. This is in part due to traders taking profit and in part due to the expectation of the US interest rate decision which we received last night. The Federal Reserve left its base rate in the now familiar 0-0.25% band but offered a fairly upbeat view of the future. Now I know we are not used to good news so I’ll write this slowly to give you time to absorb the notion of growth. They see inflation remaining subdued “for some time” but they seem convinced that the pace of the economic recession is easing. Yes I know it is only just barely ‘good’ news but we have to take our pleasures where we find them.
The affect of this was that the US Dollar strengthened by a cent against the Pound and nearly 2 cents against the Euro as we started to see some funds flowing back into the US assets. The US share market didn’t really react so perhaps these US Dollar purchases were just corrections of the sales made in Asian and European trading hours.

Today’s diary includes an expected interest rate cut from the South African Reserve Bank. With inflation down to just 8.0%, the SARB is very likely to see room to lower the cost of borrowing by 0.5% at its meeting. That shouldn’t affect the Rand too much; it’ll most likely carry on trading in its current wildly gyrating and erratic manner. We will also see US and New Zealand economic growth data today. The US data ought to confirm what the Fed was saying last night and a slightly slower pace of decline is forecast for the New Zealand release. The Kiwi data is not due until 15 mins to midnight, UK time so overnight orders to capture the volatility will be the weapon of choice for those seeking to benefit from said volatility.
I am a great fan of expensive research that ends up pointing out the bleeding obvious. After extensive detailed and painstaking research, the Road Safety Foundation has announced that the most dangerous kind of road is ‘a quiet rural road with a mix of hills, bends and straight stretches’. From that, I guess we can presume a flat straight road is safer. Is anyone surprised? Thought not, and does anyone think the government will use this as a reason to restrict speed, make one way systems, add more speed bumps or fine us more? Yup, me too.
And a report presented to the Royal College of Psychiatrists suggests that eating curry a few times a week can stave off dementia in later life. Now if that were true, there would be no elderly people in southern Asia coming into a room and wondering why they were there. I await confirmation from all our Indian, Pakistani and Sri Lankan readers that this is in fact true. If it is, then I will place a standing order for bhuna chicken with my local Rose of Bengal restaurant and collect it on the way home every night. Now where do I live again?