US Dollar stronger on safe haven flows Sterling slips on ex-IMF member’s comments Euro remains weak on ‘club med’ problems
Monday, 8 February 2010
Today's Highlights
US Dollar stronger on safe haven flows Sterling slips on ex-IMF member’s comments Euro remains weak on ‘club med’ problems
FX Market Overview
Well done to Martin Johnson’s team on Saturday. We actually looked like a cohesive rugby team at times and it was a delight to watch when that happened. Once a few of the rough edges are filed off we could be contenders. Well done Ireland and France too; the Six Nations is off to a solid start.
There were some unexpected events last week which caused all manner of change in the foreign exchange market. Both the Bank of England and the European Central Bank however, did what was expected of them; leaving their base interest rates on hold and making no further plans to expand cash creation schemes. That was all put in the shade by the fact that we remain on Greece-watch even though the head of the European Central Bank, Jean Claude Trichet, took great trouble to let us know that the Eurozone is in good shape and warned that the whole of the Eurozone shouldn’t be penalised for the problems that Greece is suffering.
However, Greece faces a massive uphill task it is to drop its budget deficit from 12.7% of GDP to the Eurozone target of 3.0% of GDP in any kind of reasonable time frame. And Greece isn’t the only one with problems; Portugal, Spain and even Germany are in the spotlight as their economies are all suffering from the lagging effects of the recession. Friday’s release of both Greek and Portuguese GDP data will certainly be influential in this regard and we get Eurozone economic growth data on Friday as well. Futures traders are the most negative towards the Euro in a decade and that partly explains the weakness in the Euro against the US Dollar and Japanese Yen. Perhaps
The other side of that is the general flight to safe havens which we are witnessing amongst international investors. Share prices are down, crude oil is down, gold is down and investors are flocking to the security of the US treasury market and the safety of Japan; which is rare in that it actually runs a trade surplus.
This week is a veritable candy shop of data although it may turn out to be more of a Pandora’s Box than that. The UK industrial production data may go some way towards proving or disproving the validity of the upturn in UK economic growth as shown a couple of weeks ago, We will also get a speech from Bank of England Governor, Mervyn King who may be inclined to try to reassure markets not to worry about the prospects for a double dip recession in the UK but, as long as UK data remains inconsistent, we can expect a lot of scepticism about that.
We will also get Australian unemployment and retail sales data this week which will be analysed in depth in light of the Reserve Bank of Australia’s decision to leave their base interest rate on hold last month.
The weekend bought some interesting comments from the G7 meeting and from an ex member of the International Monetary Fund. The G7 says the world has to wean itself off reliance on US consumers and Asian savers. It sounds a simple task if you put those two aims in one sentence but it strikes me that this is something that could perhaps happen as a consequence of the recession being well and truly over rather than something that could be engineered to resolve the problem itself.
And former International Monetary Fund chief economist, Simon Johnson, (no relation) warned that Britain’s government debt levels should be seen in the same light as Greece’s. He also suggested that the G7 economies were “fundamentally useless”. He’ll get a ridge in his bottom if he keeps sitting on that fence won’t he! Sterling is slipping at the moment but I am not sure it is as a consequence of Mr Johnson’s comments.
And this week will bring a whole bunch more data, economic comment and Chilcott debate. I don’t think I was alone in feeling rather nauseous at the sight of Alistair Campbell feigning emotion on Andrew Marr’s show but since Peter Andre broke down on TV, Gordon Brown has done it and now the hardest nosed spin doctor of the last decade has done the same. I am running a book on whether Tony Blair will shed a few tears when he is called back to answer more questions at the Chilcott enquiry; I say ‘more’ questions but I am not sure he answered any questions on his first visit.
There were some unexpected events last week which caused all manner of change in the foreign exchange market. Both the Bank of England and the European Central Bank however, did what was expected of them; leaving their base interest rates on hold and making no further plans to expand cash creation schemes. That was all put in the shade by the fact that we remain on Greece-watch even though the head of the European Central Bank, Jean Claude Trichet, took great trouble to let us know that the Eurozone is in good shape and warned that the whole of the Eurozone shouldn’t be penalised for the problems that Greece is suffering.
However, Greece faces a massive uphill task it is to drop its budget deficit from 12.7% of GDP to the Eurozone target of 3.0% of GDP in any kind of reasonable time frame. And Greece isn’t the only one with problems; Portugal, Spain and even Germany are in the spotlight as their economies are all suffering from the lagging effects of the recession. Friday’s release of both Greek and Portuguese GDP data will certainly be influential in this regard and we get Eurozone economic growth data on Friday as well. Futures traders are the most negative towards the Euro in a decade and that partly explains the weakness in the Euro against the US Dollar and Japanese Yen. Perhaps
The other side of that is the general flight to safe havens which we are witnessing amongst international investors. Share prices are down, crude oil is down, gold is down and investors are flocking to the security of the US treasury market and the safety of Japan; which is rare in that it actually runs a trade surplus.
This week is a veritable candy shop of data although it may turn out to be more of a Pandora’s Box than that. The UK industrial production data may go some way towards proving or disproving the validity of the upturn in UK economic growth as shown a couple of weeks ago, We will also get a speech from Bank of England Governor, Mervyn King who may be inclined to try to reassure markets not to worry about the prospects for a double dip recession in the UK but, as long as UK data remains inconsistent, we can expect a lot of scepticism about that.
We will also get Australian unemployment and retail sales data this week which will be analysed in depth in light of the Reserve Bank of Australia’s decision to leave their base interest rate on hold last month.
The weekend bought some interesting comments from the G7 meeting and from an ex member of the International Monetary Fund. The G7 says the world has to wean itself off reliance on US consumers and Asian savers. It sounds a simple task if you put those two aims in one sentence but it strikes me that this is something that could perhaps happen as a consequence of the recession being well and truly over rather than something that could be engineered to resolve the problem itself.
And former International Monetary Fund chief economist, Simon Johnson, (no relation) warned that Britain’s government debt levels should be seen in the same light as Greece’s. He also suggested that the G7 economies were “fundamentally useless”. He’ll get a ridge in his bottom if he keeps sitting on that fence won’t he! Sterling is slipping at the moment but I am not sure it is as a consequence of Mr Johnson’s comments.
And this week will bring a whole bunch more data, economic comment and Chilcott debate. I don’t think I was alone in feeling rather nauseous at the sight of Alistair Campbell feigning emotion on Andrew Marr’s show but since Peter Andre broke down on TV, Gordon Brown has done it and now the hardest nosed spin doctor of the last decade has done the same. I am running a book on whether Tony Blair will shed a few tears when he is called back to answer more questions at the Chilcott enquiry; I say ‘more’ questions but I am not sure he answered any questions on his first visit.
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