FX Market Overview

I know we have all read and heard plenty about Greece’s financial problems over the last few weeks but the story has more twists and turns than a plotline leading up to an Eastenders Christmas Special. The latest is that the credit ratings agency Moody’s is threatening to downgrade Greece’s sovereign debt rating unless Greece gets on top of their problems .......now. The word from Athens is that they are getting on with those plans but that their current financial crisis is the fault of Nazi thieves who stole Greek gold in the 2nd World War. Here are also comments flying around about how the Italians, amongst others, cooked the books in order to get into the Euro in the first place and how they are still doing so today. After revelations that Goldman Sachs helped Greece hide debt levels, I think there is a lot of pot and kettle here but hands up anyone who disagrees with the allegations. I thought not.
Obviously, the Euro is not flavour of the month and the Euro- US Dollar exchange rate has fallen as a result. The knock on effect though is that the UK debt hole (mountain or lake...you choose) is dragging Sterling lower; so the Pound can’t make any headway against the beleaguered Euro. The currencies that are doing rather well though are the Japanese Yen which is flying and the US Dollar which was also boosted by the comments of the Federal Reserve Chairman yesterday. Chairman Bernanke was testifying in Congress and made it very clear that last week’s increase in the Fed’s discount rate was not a prelude to an overall base rate hike. US interest rates are almost certainly set to remain very low for a very long time and that clear revelation resulted in a sharp appreciation in the value of US shares, followed by those from other countries.
Overnight news that Australia’s index of leading indicators rose was greeted with some Australian Dollar buying and the rise in the New Zealand money supply plus NZ business confidence hitting a 10 year high had a similar effect on the Kiwi Dollar.
I don’t know about you but if I lose a tenner in the street it puts me in a bad mood for the rest of the day but this morning’s news that RBS, the bank we the taxpayers own 84% of, lost £ 3.6 billion last year was greeted with smiles around the city largely because it lost a record breaking £ 23.4 billion in the previous year and markets were forecasting a £ 5 billion deficit this time around. I think I would be really upset if I lost that in the street. No Smiles here; no way.
This is a day awash with data and it leads into a Friday of similar import. The key features are US durable goods orders, Australian, German and Eurozone inflation data; and the most important for most of us will be the UK and US economic growth numbers due tomorrow. The 2nd estimate of the UK figure will be watched by millions across the world because it could either show the UK to be emerging from recession at a greater pace than the 1st estimate of 0.1% suggested or it could indicate that we have not yet emerged from recession at all. If it is the latter, then Sterling will be hammered through the latter part of the day but if it is the former, we can expect a healthy bounce back in the value of the Pound. Place your bets, Faites vos jeux. Those who abhor risk will want to protect themselves against the worst that tomorrow could throw at them but I would urge you to do so today.
And President Obama is having a make or break day as well as he tries to finalise plans to overhaul the US healthcare system but hits resistance from all over the states. He believes the result of the next 24 hours will set the tone for the rest of his presidency. Let’s hope the outcome is a good one all round; not for Obama necessarily but for the millions of American’s who don’t get full healthcare.
And that about wraps this report up and I was searching for a funny story to finish with but there isn’t a lot of funny stuff out there. Oh there was a speech by UKIP’s man in Brussels, Nigel Farage but that was more embarrassing and plain rude than funny but there was the story that Australians are being urged to eat a ‘Vindaloo against Violence’, in an effort to fight racism but vindaloos always do violence to me so I thought the slogan lacked clarity. Maybe ‘Popadums for peace’ or ‘Raita against racism’ would work better. Suggestions on a postcard to.......