BOE comments weaken Sterling Fed chairman awaited
Wednesday, 24 February 2010
FX Market Overview
Yesterday’s main news story was one I briefly mentioned in yesterday’s morning report; the negative comments made by the Bank of England Governor, Mervyn King. Sterling fell sharply during the morning session, dropping more than a cent against the US Dollar and Euro in a matter of minutes as the impact of Mr King’s words was felt. He spoke of a “fragile” recovery, of the potential for further quantitative easing and painted a very edgy picture of the months ahead in which recession may return. Well he may be speaking prematurely, we don’t even know if we are out of the first recession yet; Friday’s 2nd estimate of economic growth will tell us whether the 1st estimate of 0.1 percent Q4 growth was accurate or not. Understandably, traders were quick to get out of the currency that underlines his comments and Sterling fell through the early trading session.
However, we did get some recovery in later trade and Sterling even made gains against the Euro and US Dollar for part of the day but there never appeared to be an impetus behind the moves. That is a picture of uncertainty if ever I saw one and we start today in similarly uncertain mood. Obviously, those with mortgages will be delighted that we look set to retain very low interest rates for an extended period but those with savings will be seeking better and more effective ways to maximise their returns on their funds. That ought to lead to further investment in shares and into the likes of the Australian Dollar which pays interest based on a 3.75 percent base rate and there was certainly some evidence of that going on yesterday. Aussie Dollar buyers beware.
Part of the reason for the fall in the US Dollar was the release of the worst US consumer confidence index in 10 months and the Euro was under a bit of pressure after Germany’s IFO institute released a very poor business sentiment index. Obviously the Greek issue remains in the back of every Euro traders mind. Until we have a clear resolution to this issue, we can expect any gains the Euro makes to be quickly undermined by profit taking by nervous traders. This morning’s news that the German economy failed to grow at all in Q4 and contracted by 1.7% on the year has stopped any Euro advance in its tracks.
Today’s headline act is the Chairman of the US Federal Reserve, Ben Bernanke who testifies to Congress today and tomorrow. The questioning in these things is often more a case of congressmen grandstanding than anything detailed and useful but we will all be looking for an insight into the reasons for the Fed’s sudden and unexpected rise in the overnight lending rate (the discount rate) which they announced last Thursday. As long as Mr Bernanke does a good job of convincing us all that this was a well timed and well considered move, then we can expect further US Dollar strength in the afternoon session. However, we will see a couple of data releases pertaining to the US mortgage and housing market so there is no certainty as yet.
Other than these morsels, this will be a quiet day for data; I don’t expect that means it will be a quiet day in trading terms though so don’t get too comfy just yet. Comparisons between the UK debt levels and those of Greece continue to be made and even though Mervyn King would be amazed if the UK’s credit rating were downgraded, that doesn’t mean it can’t happen or at least be threatened in the months ahead. Only a decisive and credible plan to rid the UK of its massive debt mountain (or should that be a debt lake? We do talk about drowning in debt don’t we but we also talk about be buried under a mountain of debt. I’ll go with debt lake I think but I digress), will allow the Pound to make any sustainable headway. Sadly, that probably means we are in this nervous and indecisive trading environment until the election is out of the way and that could take until July. And then we may have a hung parliament which isn’t as exciting as it sounds. It sadly doesn’t mean we get to hang MPs, just that those who are in government won’t be able to do a lot because they won’t agree on anything other than bland middle of the road policies. So what would Sterling do then? Fall most likely. The future may not be bright and orange, it may just be beige with a hint of magnolia and that’ll make the sterling trading screens turn red.
In other news, the government is planning to remove the 100% guarantee on Northern Rock deposits as a step towards removing the bank form government reliance. The obvious fear is that it will cause another flight of funds from the Rock and that would be very counter-productive. We will watch and wait.
And finally, thank goodness Cheryl Cole has discovered some self respect and got rid of that faithless cliche. There may just be some hope for womankind. I think I may even be a feminist.
However, we did get some recovery in later trade and Sterling even made gains against the Euro and US Dollar for part of the day but there never appeared to be an impetus behind the moves. That is a picture of uncertainty if ever I saw one and we start today in similarly uncertain mood. Obviously, those with mortgages will be delighted that we look set to retain very low interest rates for an extended period but those with savings will be seeking better and more effective ways to maximise their returns on their funds. That ought to lead to further investment in shares and into the likes of the Australian Dollar which pays interest based on a 3.75 percent base rate and there was certainly some evidence of that going on yesterday. Aussie Dollar buyers beware.
Part of the reason for the fall in the US Dollar was the release of the worst US consumer confidence index in 10 months and the Euro was under a bit of pressure after Germany’s IFO institute released a very poor business sentiment index. Obviously the Greek issue remains in the back of every Euro traders mind. Until we have a clear resolution to this issue, we can expect any gains the Euro makes to be quickly undermined by profit taking by nervous traders. This morning’s news that the German economy failed to grow at all in Q4 and contracted by 1.7% on the year has stopped any Euro advance in its tracks.
Today’s headline act is the Chairman of the US Federal Reserve, Ben Bernanke who testifies to Congress today and tomorrow. The questioning in these things is often more a case of congressmen grandstanding than anything detailed and useful but we will all be looking for an insight into the reasons for the Fed’s sudden and unexpected rise in the overnight lending rate (the discount rate) which they announced last Thursday. As long as Mr Bernanke does a good job of convincing us all that this was a well timed and well considered move, then we can expect further US Dollar strength in the afternoon session. However, we will see a couple of data releases pertaining to the US mortgage and housing market so there is no certainty as yet.
Other than these morsels, this will be a quiet day for data; I don’t expect that means it will be a quiet day in trading terms though so don’t get too comfy just yet. Comparisons between the UK debt levels and those of Greece continue to be made and even though Mervyn King would be amazed if the UK’s credit rating were downgraded, that doesn’t mean it can’t happen or at least be threatened in the months ahead. Only a decisive and credible plan to rid the UK of its massive debt mountain (or should that be a debt lake? We do talk about drowning in debt don’t we but we also talk about be buried under a mountain of debt. I’ll go with debt lake I think but I digress), will allow the Pound to make any sustainable headway. Sadly, that probably means we are in this nervous and indecisive trading environment until the election is out of the way and that could take until July. And then we may have a hung parliament which isn’t as exciting as it sounds. It sadly doesn’t mean we get to hang MPs, just that those who are in government won’t be able to do a lot because they won’t agree on anything other than bland middle of the road policies. So what would Sterling do then? Fall most likely. The future may not be bright and orange, it may just be beige with a hint of magnolia and that’ll make the sterling trading screens turn red.
In other news, the government is planning to remove the 100% guarantee on Northern Rock deposits as a step towards removing the bank form government reliance. The obvious fear is that it will cause another flight of funds from the Rock and that would be very counter-productive. We will watch and wait.
And finally, thank goodness Cheryl Cole has discovered some self respect and got rid of that faithless cliche. There may just be some hope for womankind. I think I may even be a feminist.
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