Sterling still supported by CBI views US Dollar recovers as ‘reserve currency’ status is assured
Monday, 15 June 2009
Today's Highlights
Sterling still supported by CBI views US Dollar recovers as ‘reserve currency’ status is assured
FX Market Overview
That was a fantastic weekend for British Sport. The Lions continued in their winning ways although they just about hung on to beat Western Province, England’s Rugby League team romped past France, Andy Murray won at Queens; the first Brit to do so in 71 years of trying and England’s Cricketers continued in very choppy recent pattern but managed to beat reigning champions, India in the World Twenty20 tournament.
If the Pound can only carry on in that positive vein, all the British Importers and Brits moving overseas can have an equally positive week. However, nothing is certain just yet. It is often said that if you as 6 economists for their views you’ll get at least 8 opinions and that seems to be the background to the current market volatility. The Confederation of British Industry thinks the UK economy is slowly bottoming out and that UK interest rates will edge up before the year end. I think it would be a very brave Bank of England that jeopardised an immature recovery by acting so swiftly and most banks appear to agree with me rather than the CBI. The CBI will be assuming the Bank of England’s inflation expectations report is correct in assume higher inflation in the months ahead and with oil creeping above $73 per barrel, they may be right to do so but we haven’t had a sustained period of positive data yet ad until we do, I think we are safest to assume this is a false dawn. I’ll just have a sip of water before I write the next paragraph....crikey this glass is half empty.
Anyway, the other news that is wafting around the financial markets is the ‘have we, haven’t we’ debate over whether the US economy has turned the corner yet. Many investors were clearly starting to believe it had last week as they flooded into the higher yielding currencies and left the US Dollar and Japanese Yen in their wake. That flight from the US Dollar was also fuelled by expectation of an agreement amongst the so called BRIC, a grouping of emerging market economies (Brazil, Russia, India and China), that they might move away from the US Dollar as a reserve currency but they are meeting this week amidst absolute denial of that rumour and after the comment by Russia’s Finance Minister Alexei Kudrin that there is currently no alternative to the US Dollar. That is bad news for the Euro which was perceived to be the natural successor to the USD as a reserve currency. The Euro is weaker this morning and the USD is unsurprisingly stronger. That Euro weakness wouldn’t have been helped by the warning from the German chambers of Commerce that the credit crunch is still deepening in German when other countries look like they are starting to emerge from the crisis.
The week ahead is awash with data and central bank activity. The Bank of England and the reserve Bank of Australia publish minutes from their last meetings and various speakers will be heard from the European Central Bank and US Federal Reserve. We’ll also have inflation, employment and housing data from various countries and we’ll get important US industrial production data on Wednesday. It will be volatile and with Sterling testing the very top end of its trading ranges, that volatility has the potential to cause the Pound to explode out of the range it has occupied for the last 6 months or so. The caveat to that is that, if it doesn’t manage to gain against the likes of the Euro and US Dollar in this environment, it could fall substantially in the days ahead.
So I hope yours is a blisteringly good week; better perhaps than Susan Boyle’s who appear to be fast becoming the Amy Winehouse of the talent show world, perhaps better than katie Price and Peter Andre who seemingly can’t change their socks without issuing a press release but I hope you have some of the luck that saved 14 year old Gerrit Blank when he was hit by a meteorite travelling at 30,000 miles per hour. He survived after it tagged his hand and then left a crater in the tarmac behind him. I’ve already emailed him and asked him for 6 numbers between 1 and 49 plus a bonus ball number.
If the Pound can only carry on in that positive vein, all the British Importers and Brits moving overseas can have an equally positive week. However, nothing is certain just yet. It is often said that if you as 6 economists for their views you’ll get at least 8 opinions and that seems to be the background to the current market volatility. The Confederation of British Industry thinks the UK economy is slowly bottoming out and that UK interest rates will edge up before the year end. I think it would be a very brave Bank of England that jeopardised an immature recovery by acting so swiftly and most banks appear to agree with me rather than the CBI. The CBI will be assuming the Bank of England’s inflation expectations report is correct in assume higher inflation in the months ahead and with oil creeping above $73 per barrel, they may be right to do so but we haven’t had a sustained period of positive data yet ad until we do, I think we are safest to assume this is a false dawn. I’ll just have a sip of water before I write the next paragraph....crikey this glass is half empty.
Anyway, the other news that is wafting around the financial markets is the ‘have we, haven’t we’ debate over whether the US economy has turned the corner yet. Many investors were clearly starting to believe it had last week as they flooded into the higher yielding currencies and left the US Dollar and Japanese Yen in their wake. That flight from the US Dollar was also fuelled by expectation of an agreement amongst the so called BRIC, a grouping of emerging market economies (Brazil, Russia, India and China), that they might move away from the US Dollar as a reserve currency but they are meeting this week amidst absolute denial of that rumour and after the comment by Russia’s Finance Minister Alexei Kudrin that there is currently no alternative to the US Dollar. That is bad news for the Euro which was perceived to be the natural successor to the USD as a reserve currency. The Euro is weaker this morning and the USD is unsurprisingly stronger. That Euro weakness wouldn’t have been helped by the warning from the German chambers of Commerce that the credit crunch is still deepening in German when other countries look like they are starting to emerge from the crisis.
The week ahead is awash with data and central bank activity. The Bank of England and the reserve Bank of Australia publish minutes from their last meetings and various speakers will be heard from the European Central Bank and US Federal Reserve. We’ll also have inflation, employment and housing data from various countries and we’ll get important US industrial production data on Wednesday. It will be volatile and with Sterling testing the very top end of its trading ranges, that volatility has the potential to cause the Pound to explode out of the range it has occupied for the last 6 months or so. The caveat to that is that, if it doesn’t manage to gain against the likes of the Euro and US Dollar in this environment, it could fall substantially in the days ahead.
So I hope yours is a blisteringly good week; better perhaps than Susan Boyle’s who appear to be fast becoming the Amy Winehouse of the talent show world, perhaps better than katie Price and Peter Andre who seemingly can’t change their socks without issuing a press release but I hope you have some of the luck that saved 14 year old Gerrit Blank when he was hit by a meteorite travelling at 30,000 miles per hour. He survived after it tagged his hand and then left a crater in the tarmac behind him. I’ve already emailed him and asked him for 6 numbers between 1 and 49 plus a bonus ball number.
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