FX Market Overview

As I mentioned in yesterday’s report, there really wasn’t a lot of data to excite the markets and the generally negative mood that started with the Chancellor at the weekend continued to permeate the market. Sterling spent most of the day on the slide but didn’t completely collapse and is at roughly the same levels this morning as it ended London trading hours yesterday.
Sterling’s slide was exacerbated by the return to risk-averse investment strategies which produced a bout of US Dollar strength and Japanese Yen strength. These two currencies are most affected because US treasury certificates are the safe havens of choice these days and because a very large proportion of the investment funds flying in and out of higher yielding currencies and assets are being borrowed in Japan and virtually 0% interest rates.
And Sterling was not helped by the calls from the British Chambers of Commerce for the Bank of England to extend and expand its asset-purchase program because the BCC sees it as an essential tool to get the UK economy going again. I will leave you to debate whether they are right or wrong but I am already concerned about the lack of detail over the funds that have already been extended to banks and whether any of those sums have made it into the bank accounts of businesses in the UK.
News came overnight that the Reserve Bank of Australia kept its base interest rate on hold at 3.0%. It maintains the attractiveness of the Australian Dollar as an investment destination. This was universally expected and the Aussie Dollar did little other than to strengthen in reaction to the steady flow of said investment funds into Australia. Today started in a similar vein to yesterday with reasons to sell the Pound being at the top of most traders’ agendas. UK factory output and industrial production fell in May; wrong footing those who were expecting yet another sign that the oddly shaped bottom of this economic slump was upon us. (Sorry that is a metaphor that conjures up all the wrong sorts of images but I am sure you know what I mean). Oddly shaped bottoms aside, the rest of the day is almost devoid of data until virtually midnight tonight when we see the UK Nationwide consumer confidence index and a quartet of Japanese data releases.
However, we have just received German factory orders data which was surprisingly strong; so that should result in further Euro strength in the day ahead.
So have a great Tuesday, and if you are flying anywhere, take a qualified engineer with you. That is what saved the passengers of a Thomas Cook flight from Menorca to Glasgow from an 8 hour delay. When the captain announced the flight would be delayed while they flew an engineer from the UK to fix a problem, one of the passengers announced he was an aircraft technician, presented his qualifications to work on the plane and got out and fixed it. It would probably have been quicker if not for the distraction of all the other blokes on the flight looking under the bonnet and muttering about checking the leads and plugs.