US interest rate statement is week’s highlight Volatility as forecasts widen
Monday, 22 June 2009
FX Market Overview
I guess all the fathers out there are resplendent in new socks, funky ties and cufflinks and smelling divine this morning. Either that or they may be carrying bags with receipts in as they head for the M&S customer services desk. Either way, I hope yours was a relaxing weekend and fathers day. It was certainly a great weekend for sport although the Brits fared less well this weekend than last. If the British & Irish Lions could just play for 80 minutes the way they did for the last 30, the next test against South Africa will give them a romping win. But I have a feeling the Boks will be a bit fitter next week.
The markets were a tad sanguine in far eastern trading and that was just a continuation of Friday’s rather flat trading pattern. However, within that rather lacklustre day, the surprise package was the Pound which gained strength through late UK trading and retains most of that strength this morning. You could speculate or just guess at the rationale behind this recent bout of Sterling strength; there is certainly an element of buying the least worst currency and to some extent this is an unwinding of a whole heap of ‘short’ sterling speculative trades that built up through 2007 and 2008. There is even some confidence that the UK might start to recover before the end of 2009 but that is much more dependent on external forces and confidence returning to the global financial markets than many forecasters would wish.
As always, the question is whether the Pound can continue to rally or whether the pace will decline and we will hit the end of the month with Sterling sell-off as traders take profit on these moves. That is a significant risk and one that should not be underestimated. The first two days of next week are the end of the Month, Quarter and half year and that can be significant for corporates and traders alike. This might be especially busy though at a time when the disparity between the forecasts of analysts and commentators is at record highs. Obviously you need differing views for any market to function. It is said that when one trader sells an asset, another buys it and they both feel they decision is astute. However, when the forecasts are so very wide, the potential exists for very rapid swings in the markets as the traders who got it all wrong, sell out of their positions and rush into trades in the other direction in order to capture the real move.
But before we get to the month end and all the excitement that this will bring, we will encounter business and consumer sentiment indices from around the globe, economic growth data from the US, New Zealand and Japan, German inflation numbers and the all important interest rate decision from America. No one is expecting any kind of change in the US interest rate level but the press conference that accompanies the announcement will be scrutinised for any signs that the Federal Reserve has a plan to raise interest rates and when that might happen. We’ll know the answer to that on Wednesday evening at some time after 18.15 GMT. We will also have an interest rate announcement from the South African Reserve Bank and that is most loikely to yield a 0.5% cut in theri base rate.
So hold on tight because it will be a wild and woolly week and there will be casualties (financial ones obviously). No violence here; we’re not hoodies or anything like that. I hope yours is a good one but you'll have to excuse me, I have a matching Mickey Mouse tie, socks, driving gloves and underwear set to return. I obviously told them I loved it, as you do, but I am not sure I managed to make the grateful smile quite convincing enough. The Toblerone was nice though.
The markets were a tad sanguine in far eastern trading and that was just a continuation of Friday’s rather flat trading pattern. However, within that rather lacklustre day, the surprise package was the Pound which gained strength through late UK trading and retains most of that strength this morning. You could speculate or just guess at the rationale behind this recent bout of Sterling strength; there is certainly an element of buying the least worst currency and to some extent this is an unwinding of a whole heap of ‘short’ sterling speculative trades that built up through 2007 and 2008. There is even some confidence that the UK might start to recover before the end of 2009 but that is much more dependent on external forces and confidence returning to the global financial markets than many forecasters would wish.
As always, the question is whether the Pound can continue to rally or whether the pace will decline and we will hit the end of the month with Sterling sell-off as traders take profit on these moves. That is a significant risk and one that should not be underestimated. The first two days of next week are the end of the Month, Quarter and half year and that can be significant for corporates and traders alike. This might be especially busy though at a time when the disparity between the forecasts of analysts and commentators is at record highs. Obviously you need differing views for any market to function. It is said that when one trader sells an asset, another buys it and they both feel they decision is astute. However, when the forecasts are so very wide, the potential exists for very rapid swings in the markets as the traders who got it all wrong, sell out of their positions and rush into trades in the other direction in order to capture the real move.
But before we get to the month end and all the excitement that this will bring, we will encounter business and consumer sentiment indices from around the globe, economic growth data from the US, New Zealand and Japan, German inflation numbers and the all important interest rate decision from America. No one is expecting any kind of change in the US interest rate level but the press conference that accompanies the announcement will be scrutinised for any signs that the Federal Reserve has a plan to raise interest rates and when that might happen. We’ll know the answer to that on Wednesday evening at some time after 18.15 GMT. We will also have an interest rate announcement from the South African Reserve Bank and that is most loikely to yield a 0.5% cut in theri base rate.
So hold on tight because it will be a wild and woolly week and there will be casualties (financial ones obviously). No violence here; we’re not hoodies or anything like that. I hope yours is a good one but you'll have to excuse me, I have a matching Mickey Mouse tie, socks, driving gloves and underwear set to return. I obviously told them I loved it, as you do, but I am not sure I managed to make the grateful smile quite convincing enough. The Toblerone was nice though.
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