FX Market Overview

The Chancellor Alistair Darling announced this morning that this year’s budget will be held on 24 March. This is six weeks before the expected election date which will give voters a valuable insight into Labours seriousness in cutting the deficit.
The pound slide sharply yesterday following a dreadful January trade balance which showed UK export volumes fell 9%. This is extremely concerning given the boost exports should have received from the massive fall in the value of the pound. As the fifth biggest manufacturer in the world, an export led recovery is vital if the UK is to pull itself out of this slump. The poor trade figures are due to a combination of weaker demand from our trading partners, particularly Europe and increased competition from emerging markets such as India and China.

China’s February foreign trade figures just released show exports grew an impressive 45% year-on-year. The contrast with the UK couldn’t be greater and this wasn’t helped by this morning’s January industrial production number which fell -0.9%. This was the biggest fall since August last year and was much worse than the forecast +0.2%. This provided another reason to sell the once proud pound.
Attention this afternoon will focus on the February GDP estimate from the NIESR (National Institute of Economic and Social Research). The market is expecting +0.4%, so fingers crossed this number won’t disappoint and may even provide some much needed cheery news for sterling.
Recent UK housing numbers have disappointed and indicated that the correction higher was losing momentum. The same appears to be true in the US and Australia. The number of home loans granted in January fell almost 8%, the biggest fall since June 2000. The big drop is likely due to the removal of the “first-home buyer’s grant” and the 1% hike in interest rates since October last year. Australian employment figures and confidence numbers are strong while a shortage of housing suggests a fall in property prices is unlikely. At +0.2%, the Westpac March Australian consumer confidence figure overnight was much stronger than Februarys -2.6%.

Canadian politicians will be served seal meat in the parliamentary restaurant today in defiance of the EU ban on the import of seal products. Politicians are expected to show solidarity for the annual seal hunt which provides income to the Atlantic fishing communities by feasting on double-smoked bacon-wrapped seal loin in a port reduction. You can guarantee Canadian wild salmon wrapped in double-smoked bacon would taste nicer but where's the rebellion in that?