BoE Governor warns chancellor to get his finances in order UK unemployment hits new high
Thursday, 18 June 2009
Today's Highlights
BoE Governor warns chancellor to get his finances in order UK unemployment hits new high
FX Market Overview
Yesterday was a day more of consolidation than of major change but the interesting thing is that Sterling has consolidated at relatively strong levels. The major movement came with the US Dollar which weakened, perhaps as a result of the pledges by the leaders of the so called BRIC nations, Brazil, Russia, India and China, all of whom are seeking to diversify the reserve currencies held by their countries. These four are estimated to hold something like $2.8 trillion worth of reserves and account for 15 percent of the global economy so these are not just minor pledges but even if they do diversify, they are unlikely to cause a major change in the appetite amongst international investors for Russian, Chinese, Indian or Brazilian currency reserves. This is partly to do with the perceived risk of emerging market economics at a time when risk is still a four letter word and partly due to the restrictive nature of their currency controls.
The other reason for US Dollar weakness would have been the sharpest drop in consumer inflation in 59 years. The -1.3% figure came in spite of a sharp 9.6% month on month rise in pump prices for petrol (gasoline).
Elsewhere, a rise in UK unemployment to 1997 levels did nothing to help the Pound advance but risks elsewhere flattered the Pound as other currencies weakened faster than Sterling. You may have noted that I have been very wary of getting rapt by this recent bout of predictions that the worst is over for the UK because I fear we may suffer another round of negative data before we see real sustained recovery and Sterling sellers may do well to heed the warnings coming from many European banks that Sterling is likely to decline on profit taking if risk aversion takes over. And, after the bank of England meeting minutes confirmed a unanimous 9-0 vote to maintain the base rate at the record low 0.5%, in his Mansion House speech last night, the Governor of the Bank of England suggested that it was far too soon to be contemplating interest rate rises in the UK. I heard a loud sigh from those with savings and a ‘phew‘from the mortgage payers out there.
Mervyn King also warned the Chancellor of the Exchequer that he needs to get public finances under control. Good luck Mervyn, 60 million of us have been saying that for 12 years and no one has listened yet. No, that’s a lie, they have done something about it; they increased taxes; so that’s alright then.
Today’s news will give everyone a chance to assess whether they agree with Mr King; we get retail sales, government borrowing and money supply data all at the same time of 09.30 (BST) this morning. It looks like this will be a bit of a mixed bag but I would guess we should see some Sterling weakness leading up to this data and the path afterwards will be set by the hard facts.
The rest of the day should bring news of Canadian deflation as well as the Philadelphia Fed’s business sentiment index and the US leading indicator figures which don’t appear to be so closely watched by the current Fed chairman as they were by his predecessor. The Canadian data will be interesting for anyone planning to move to or import from Canada. The recent rise in oil prices is stifling further weakness in the Canadian Dollar but there is always a chance that a forecast drop of 0.2% in annualised inflation could make that happen. Don’t hold your breath but do place a cheeky order above the market to grab bargain Canadian Dollars within the almost certain spike around the time of the data.
And that is about that really. There are other news stories but they mainly revolve around government U turns, sacked ministers and vacuous ‘celebrities’ but writing about them just makes me angry and that is certainly not the way to start the day. There was a story about a Plymouth school that banned bananas because one teacher was allergic to them but that’ll make us all angry and bring out, ‘They’ll be banning breathing soon’ type comments. We are fast approaching midsummer’s day and I would like to stay happy.
The other reason for US Dollar weakness would have been the sharpest drop in consumer inflation in 59 years. The -1.3% figure came in spite of a sharp 9.6% month on month rise in pump prices for petrol (gasoline).
Elsewhere, a rise in UK unemployment to 1997 levels did nothing to help the Pound advance but risks elsewhere flattered the Pound as other currencies weakened faster than Sterling. You may have noted that I have been very wary of getting rapt by this recent bout of predictions that the worst is over for the UK because I fear we may suffer another round of negative data before we see real sustained recovery and Sterling sellers may do well to heed the warnings coming from many European banks that Sterling is likely to decline on profit taking if risk aversion takes over. And, after the bank of England meeting minutes confirmed a unanimous 9-0 vote to maintain the base rate at the record low 0.5%, in his Mansion House speech last night, the Governor of the Bank of England suggested that it was far too soon to be contemplating interest rate rises in the UK. I heard a loud sigh from those with savings and a ‘phew‘from the mortgage payers out there.
Mervyn King also warned the Chancellor of the Exchequer that he needs to get public finances under control. Good luck Mervyn, 60 million of us have been saying that for 12 years and no one has listened yet. No, that’s a lie, they have done something about it; they increased taxes; so that’s alright then.
Today’s news will give everyone a chance to assess whether they agree with Mr King; we get retail sales, government borrowing and money supply data all at the same time of 09.30 (BST) this morning. It looks like this will be a bit of a mixed bag but I would guess we should see some Sterling weakness leading up to this data and the path afterwards will be set by the hard facts.
The rest of the day should bring news of Canadian deflation as well as the Philadelphia Fed’s business sentiment index and the US leading indicator figures which don’t appear to be so closely watched by the current Fed chairman as they were by his predecessor. The Canadian data will be interesting for anyone planning to move to or import from Canada. The recent rise in oil prices is stifling further weakness in the Canadian Dollar but there is always a chance that a forecast drop of 0.2% in annualised inflation could make that happen. Don’t hold your breath but do place a cheeky order above the market to grab bargain Canadian Dollars within the almost certain spike around the time of the data.
And that is about that really. There are other news stories but they mainly revolve around government U turns, sacked ministers and vacuous ‘celebrities’ but writing about them just makes me angry and that is certainly not the way to start the day. There was a story about a Plymouth school that banned bananas because one teacher was allergic to them but that’ll make us all angry and bring out, ‘They’ll be banning breathing soon’ type comments. We are fast approaching midsummer’s day and I would like to stay happy.
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