Sterling slips as Euro problems discussed BOE inflation report awaited
Wednesday, 10 February 2010
FX Market Overview
Sterling had a poor day yesterday for a number of reasons. Mostly it related to the Greek issue I have mentioned at length in recent reports but credit ratings agency, Fitch didn’t help matters when they suggested that, of the Triple A rated countries, Britain was the most vulnerable to a downgrade. At a time when the UK government is going to have to issue heaps of debt to get itself out of its asset repurchase mire, this will either make it more expensive for the UK government to borrow or make it impossible to sell all the bonds they need to issue. Neither is a good thing. And incidentally, some of the French press is citing the cost of staging the Olympics as the reason for Greece’s massive debt problems. It doesn’t bode well for the UK doing so just as we were hoping to be emerging from a very dark recession. I am sure that is a story which will run and run.
Yesterday’s other news was the poor UK trade deficit which suggested that whilst imports remained fairly robust, exports are suffering as global demand slips even though Sterling is making UK products cheaper in most other countries. Today’s Bank of England quarterly inflation report will be interesting though. The BoE chose to leave their base interest rate and quantitative easing programs at status quo last week so it must be assumed they see the last month’s inflation surge as a blip rather than a trend. So their words today will be sifted carefully for any signs that the base rate will have to rise or that the level of QE might be reduced in the months ahead. There is no doubt that the monetary policy committee has strayed from its objective of simply controlling inflation but it will be interesting to see how they justify that action.
The Euro had a rather better day though as Germany threw its weight behind plans to extract Greece from its fiscal problems and the European Central Bank was said to be discussing the Greek matter at a meeting which President Jean Claude Trichet made a special effort to attend in flying back from Sydney early. A sequence of strikes in Greece against government austerity plans serve only to highlight the problem that the government faces but financier, fund manager and multi millionaire George Soros thinks Greece will manage to sort its problems. Let’s hope he is right.
Many traders and investors think he is because the news of a potential solution to the Greek affair caused a rally in share markets and a slight weakening of the US Dollar which had been bought heavily as a safe haven in recent weeks. The Sterling - US Dollar exchange rate rose a cent and a half before the London close.
Today also brings industrial production data from the UK and the US trade balance. Both have the potential to create waves in the market and both will be closely followed.
In non- currency related news, those who are in the midst of pans to move to Australia were offered some clarity by the Australian authorities yesterday as the types of skilled workers allowed to fast track their visas were changed. This is covered in more details below but it is worth reviewing your plans in light of the new developments. Your Halo Financial Consultant will be able to outline the major changes and/or refer you to someone who can help you to assess your plans.
Overall, I think we may be on the verge of a weakening of the Pound. I say this because Sterling’s recent strength has been driven far more by nervousness elsewhere than by anything attributable to the UK. If, as we assume, Greece’s problems will be sorted out - for now at least, that will allay some fears amongst investors who should start to sell back out of the US Dollar and buy back into higher risk assets than US Treasuries. These include equities, bonds in higher yielding countries like the Australasians and perhaps commodities as well. All of this is likely to strengthen the Australasian Dollars and the Euro and leave the Pound in its wake, especially in light of the Fitch warning, a looming UK election and the spectre of a hung parliament. I know I sound very negative but I cannot see the bright sky for Sterling in amongst the overwhelming gloom. In my opinion, those who have to sell Sterling to buy any other currency should be thinking about short term risk management rather than gambling on a resurgence of the Pound.
On a lighter note - and you couldn’t get much gloomier I know - scientists have discovered that beer is good for you. The silicone in beer apparently strengthens bones and prevents osteoporosis. I would think that if you drink a lot of beer, strong bones that can resist breaking when you fall over would be very helpful. Nature is very clever in the way it balances things isn’t it.
Yesterday’s other news was the poor UK trade deficit which suggested that whilst imports remained fairly robust, exports are suffering as global demand slips even though Sterling is making UK products cheaper in most other countries. Today’s Bank of England quarterly inflation report will be interesting though. The BoE chose to leave their base interest rate and quantitative easing programs at status quo last week so it must be assumed they see the last month’s inflation surge as a blip rather than a trend. So their words today will be sifted carefully for any signs that the base rate will have to rise or that the level of QE might be reduced in the months ahead. There is no doubt that the monetary policy committee has strayed from its objective of simply controlling inflation but it will be interesting to see how they justify that action.
The Euro had a rather better day though as Germany threw its weight behind plans to extract Greece from its fiscal problems and the European Central Bank was said to be discussing the Greek matter at a meeting which President Jean Claude Trichet made a special effort to attend in flying back from Sydney early. A sequence of strikes in Greece against government austerity plans serve only to highlight the problem that the government faces but financier, fund manager and multi millionaire George Soros thinks Greece will manage to sort its problems. Let’s hope he is right.
Many traders and investors think he is because the news of a potential solution to the Greek affair caused a rally in share markets and a slight weakening of the US Dollar which had been bought heavily as a safe haven in recent weeks. The Sterling - US Dollar exchange rate rose a cent and a half before the London close.
Today also brings industrial production data from the UK and the US trade balance. Both have the potential to create waves in the market and both will be closely followed.
In non- currency related news, those who are in the midst of pans to move to Australia were offered some clarity by the Australian authorities yesterday as the types of skilled workers allowed to fast track their visas were changed. This is covered in more details below but it is worth reviewing your plans in light of the new developments. Your Halo Financial Consultant will be able to outline the major changes and/or refer you to someone who can help you to assess your plans.
Overall, I think we may be on the verge of a weakening of the Pound. I say this because Sterling’s recent strength has been driven far more by nervousness elsewhere than by anything attributable to the UK. If, as we assume, Greece’s problems will be sorted out - for now at least, that will allay some fears amongst investors who should start to sell back out of the US Dollar and buy back into higher risk assets than US Treasuries. These include equities, bonds in higher yielding countries like the Australasians and perhaps commodities as well. All of this is likely to strengthen the Australasian Dollars and the Euro and leave the Pound in its wake, especially in light of the Fitch warning, a looming UK election and the spectre of a hung parliament. I know I sound very negative but I cannot see the bright sky for Sterling in amongst the overwhelming gloom. In my opinion, those who have to sell Sterling to buy any other currency should be thinking about short term risk management rather than gambling on a resurgence of the Pound.
On a lighter note - and you couldn’t get much gloomier I know - scientists have discovered that beer is good for you. The silicone in beer apparently strengthens bones and prevents osteoporosis. I would think that if you drink a lot of beer, strong bones that can resist breaking when you fall over would be very helpful. Nature is very clever in the way it balances things isn’t it.
Australian Visa Changes
As mentioned above, Australia has announced plans to revise its visa lists. If you are in the process of migrating to Australia or are looking at the possibility, you will probably be aware of the Migration Occupations in Demand List (MODL) which, as the title suggests details the professions which will be fast tracked into Australia because they are in demand. This list has now been revoked and is being replaced by a new Skilled Occupations List. This change will not affect all of those who are currently having their visas processed but it will affect anyone who has not yet lodged their visa on the basis of the MODL. The Critical Skills Lists (CSL) are also being removed and replaced by a comprehensive Skilled Occupation List (SOL) in the 2nd half of 2010 with the occupations on that list being determined by “Skills Australia” an independent body. There are other changes that may affect you and I am not an expert in these things but we at Halo Financial do know people who are, so if you would like to be referred to a trusted partner please let your Halo Financial Consultant know.
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