FX Market Overview

It’s the big day at last; this whole week has been awash with comment on whether the 1st estimate of Q4 UK economic growth was accurate at 0/1 percent or whether it was optimistic or pessimistic. Well it was certainly one of the three but the estimate, which is based on just 40 percent of the full data set, certainly doesn’t chime with all the other data we have seen in the interim and the figures released yesterday showed that business investment slumped by5.8 percent in quarter 4, so most analysts are understandably taking a rather negative approach to this morning’s release of the 2nd estimate which uses all the facts. Some point to the dovish views expressed by the Governor of the Bank of England as a sign that he was softening the markets up for a GDP disappointment.
Yesterday’s slump in the value of the Pound to its lowest ebb against the US Dollar in 9 months and the lowest against the Japanese Yen in 11 months was testament to the very cautious approach traders are taking to today’s data. What that means is that, if the number is anything above 0.1 percent, Sterling has the potential to rally back to at least the levels seen at the start of the week. But the doubts will remain as to whether this is a sustainable recovery and whether the Greek issue is as contagious as we worry that it may be.
And the Greek issue remains on the back burner while diplomatic efforts are made behind the scenes to find a way out of the mess without Germany and France being seen to throw money at Greece. Stock markets are lower as a result of speculation over the nature and efficacy of any Greek rescue plan and Standard and Poors, the credit ratings agency, warned that it may slash Greece rating on sovereign debt to ‘junk’ within a month unless something solid is decided and the austerity plans are seen as bold enough. The Euro fell with then pound yesterday against the US Dollar and Japanese Yen but that parallel motion meant the Pound only slipped by a cent against the Euro.
In these times of heightened nervousness, the last thing the markets needed was a poor US employment report but the weekly jobless claims numbers were just that. The rise of 22,000 claimants last week was not what the doctor ordered and it left traders wary of next week’s monthly employment report. However, nervousness in the markets tends, these days, to lead to strength in the US Dollar due to the USD’s safe haven status in the minds of investors; yet another reason for the sharp appreciation of the US Dollars value. But we also get the US economic growth data today and that will be just as keenly watched as the UK numbers. The US looks to be out of recession but the ‘double dip’ recession idea is one that is discussed on a daily basis in newswires and the press so any hint that the US growth is slowing or stalling may well add to investors risk aversion and guess what, that probably means further US Dollar strength.
The backwash from this is the movement that this creates in other currencies. The Canadian Dollar for example is being boosted by the effect of the strong US Dollar due to Canada’s reliance on US buyers more than 70 percent of its exported goods. The Australasian Dollars have remained relatively flat in the midst of this furore though because Australia and New Zealand have both published very positive economic data this week and even though major trading partner China is trying to slow its economy, growth here is better than anywhere in the west.
In essence, I have on my tin hat as well as knee and elbow protectors because this looks like it will be a majorly volatile day. Quite what the Sterling charts will look like at the end of it is a moot point but whatever happens in the interim, there will be some great buying AND selling opportunities as the most important piece of quarterly data arrives on the last day of the month and the week.
On a very practical note, if you are planning to trade anything for settlement today, you are best advised to do so early as this is an immense day for settlements and banks’ payment systems tend to run rather slow on a day like today.
On a less ‘furrowed brow’ type note we have another weekend of 6 Nations rugby and that is a very good thing. With England and France being the only two unbeaten teams so far, this weekend’s events could set the tone for the rest of the tournament and I am really looking forward to it. There is also more winter spirit stuff from Canada and I have become a fan of Ski Cross, which is the most fantastic sport; a kind of rollerball with skis and jumps ......but without the ball. It’s great fun though, I highly recommend it to anyone who hasn’t yet got into the whole slippery sport thing.