FX Market Overview

Greece came through on its promise to increase its planned cuts by half as much again and deliver €4.8 billion of cuts to try to appease the rest of Europe and hopefully (from the Greek side of the equation) give Germany and France enough incentive to provide some level of financial support for the troubled Greek economy. At first glance, they may not have reached that goal after German Chancellor, Angela Merkel suggested that her meeting with Greek Prime Minister, George Papandreou today would not be about cash from Germany to Greece but about Greece raising its own funding and she felt that Greece may have done enough to encourage the financial markets to invest.
Both Prime Minister and Chancellor are treading a narrow path with their own electorate; Germans aren’t happy to pay for Greece’s past problems and Greeks aren’t happy to see services cut. Such is the joy of politics guys. Papandreou sees this as “a historic moment for the European Union.” and he may well be right. Either the EU will come out f this looking like the unified force that it always claims to be or it will look like a group of nations more involved in individual nationalist aims. Only time will tell but the financial markets are ambivalent thus far and the Euro is meandering in a narrow range.
Sterling had a better day but I think the headline that said “Sterling soars” was overplaying the moves just a tad. Sterling may have gained a cent against the US Dollar and the Australasian currencies but that is no more than a normal intraday movement. If you could call the flight of paper dart ‘soaring’ than Sterling may well have done so. My paper darts tend to make it to the other side of the room before crashing into the sofa but I digress. Sterling’s slightly better form came after the Service sector purchasing managers’ index rose to its highest level since January 2007. This was well above expectation and, it must be said, slightly out of kilter with recent data from other sectors like retail and construction. So whilst it is great that the buyers in the service sector are happier and super that many analysts see this as evidence that the UK may be exiting recession faster than previously forecast, I would urge caution before believing this to be the swallow that makes the summer. Surely, unless other sectors start to gather pace, there will be no one for the service sector to service. Sterling’s gains haven’t followed through into this morning’s trading.
Sterling was also supported by the rumour that the sharp fall in the Prudential’s share price may jeopardise the deal with AIG; hence no need for Sterling to be sold to fund the buyout. That story continues; this is only a rumour after all.
From the US last night we heard that the institute of supply managers report was, like the UK equivalent, very upbeat on the service sector and the ADP report on payrolls was one of the most encouraging on record and the Federal reserve’s Beige Book was quite upbeat as well but warned that the heavy snow storms in washington and elsewhere will have dampened growth in the 1st quarter of 2010.
In other news, the rise in oil prices back above $80 per barrel kept the Canadian Dollar in demand and, because oil is priced and traded in US Dollars, this will keep demand higher for US currency. But today’s big news is the twin interest rate decisions from the Bank of England and the European Central Bank. I say big news but to be honest, nothing is expected to be changed or announced and we ought to end the day with the Eurozone base rate at 1.0 percent and the UK base rate at 0.5 percent, no change is forecast to the BoE’s quantitative easing program and we are highly unlikely to even get a press conference from the BoE. The ECB does give a press conference after its meeting which can yield clues to the future policy but not always. It will be interesting though to see if the ECbn speaks about Greece after Chairman Jean Claude Trichet was rumoured to have described the Greek problem as a roadblock on the slip road to recovery. So if you can tear yourself away from news of Carla Bruni’s slinky dress and John Terry being booed, then there are things to watch out for today.
But if central bankers blathering on about fiscal prudence and the like is not your cup of tea, firstly that means you are of sound mind, so congratulations on that, and secondly, you could always do as polish plumber Jacek Slominski did, search under your house for a magic stone and use it to heal bad backs and other ailments. Apparently the stone, found in the garden of his home in Bialystok, has a large Z carved into it and as soon as he touched it, his bad back got better. People now travel from miles around to touch the stone and it heals them. Now that’s a business opportunity...and it is recession proof.