Bank of England vote as forecast UK debt data and retail sales due this morning
Thursday, 19 August 2010
FX Market Overview
There was a distinct lack of data to tempt traders into the markets yesterday. The Bank of England minutes offered no more than we had forecast; that being an 8 to 1 vote in favour of leaving interest rates on hold and no change in the level of quantitative easing. Andrew Sentence was the dissenter as expected. However, the rumour mill ahead of the release of the minutes was that there might have been a three way split in the voting with someone; and various names were suggested, voting for further expansion in the quantitative easing or even another interest rate cut. The fact that all of this was utter tosh meant the Pound, which had weakened ahead of the announcement, strengthened by a cent against the US Dollar and Euro in the 10 minutes after the release. Sterling didn’t make any further gains for the rest of the day. In fact it has traded in very narrow ranges for the whole of the last 18 hours or so.
Data-wise, that was pretty well all we had to look at and the markets traded in narrow ranges for the rest of the day. We did get a sharp rise in US mortgage applications but the nitty-gritty of the data showed that most were remortgages so the overall effect is largely neutral. The US Dollar, understandably, ignored the numbers and carried on in the same tight ranges it has occupied for the whole of the last week.
Elsewhere, the Australian Dollar is weaker ahead of this weekend’s closely fought Australian election. The miniscule margin between the parties shown in various opinion polls suggests this cold well be a hung parliament with perhaps the Greens holding sway. One of the significant features of that outcome would be the renegotiation of the mining tax which the greens want to raise back up to the 40% level that was proposed by the previous prime minister and led to his downfall. A few volatile days are inevitable for the Aussie Dollar as we head into the weekend and as the results come through.
So while the Australian Dollar is weaker, some of that money appears to be flowing into the New Zealand Dollar which is having a small purple patch. That is a tad surprising in light of the Governor of the Reserve Bank of New Zealand, Alan Bollard announcing a reduction in the RBNZ’s inflation forecast to a 5% peak. That reduces the likelihood if higher interest rates and should therefore reduce demand for the NZ Dollar. Clearly the election effect is shunting funds from nearby Australia into New Zealand which means this could be a short lived rally. NZ Dollar sellers should be thinking about their requirements.
In Europe, newspaper reports of rising tensions in Greece have kept the pressure up on the Euro which lost ground against the US Dollar throughout the day. The fact that Greek austerity measures are impinging on every aspect of Greek life is seen as a warning that further social unrest could follow and that would make it even harder for the Greek authorities to muster the cash to pay back IMF and EU loans. Reports that the measures have pushed unemployment to 70% in some areas will not help.
Today’s data is not overwhelming but the UK retail sales, mortgage approvals and government debt levels are very worthy bellwethers to the state of play in the UK economy. We are expecting a fairly sharp decline in retail activity as Brits continue to tighten their belts and anyone who has tried to get a mortgage will not be surprised that approvals are likely to have declined significantly as well. The old adage that a baker is someone who will lend you his umbrella but ask for it back the minute it starts to rain is being highlighted in these figures. The high levels of deposit requirements and the alarmingly high interest rates, when the BOE base rate is at an all time low, are both factors.
And the day is rounded off by leading indicators and wholesale sales data from Canada as well as a US business sentiment index along with the leading indicators index. This latter report is watched very closely by the Federal Reserve for signs of potential economic growth or contraction.
And finally, I know that Friday the 13th is supposed to be dangerous so if I were a 13 year old boy and the time is 13.13 Hrs on Friday 13th, I think I would have tucked myself in a safe place under a duvet or something. Not so a 13 year old boy in Lowestoft, Suffolk who was struck by lightning at that time on that day whilst watching an air show.......in a lightning storm...holding a metal posted umbrella. He will apparently make a full recovery but there are some lessons to be learned here.
But while we think of that, another ‘young man’ is in the news. At the age of 21, Bill Millin stood on Sword beach on D Day and played his bagpipes to rally the troops. German soldiers who were later taken prisoner said they didn’t shoot him because they thought he was just plain mad but his actions have become legendary in the British military and amongst the residents of Normandy. He died peacefully yesterday aged 88 and a statue is to be erected in his memory in Colleville-Montgomery, in Normandy. A fitting tribute to a true survivor.
Data-wise, that was pretty well all we had to look at and the markets traded in narrow ranges for the rest of the day. We did get a sharp rise in US mortgage applications but the nitty-gritty of the data showed that most were remortgages so the overall effect is largely neutral. The US Dollar, understandably, ignored the numbers and carried on in the same tight ranges it has occupied for the whole of the last week.
Elsewhere, the Australian Dollar is weaker ahead of this weekend’s closely fought Australian election. The miniscule margin between the parties shown in various opinion polls suggests this cold well be a hung parliament with perhaps the Greens holding sway. One of the significant features of that outcome would be the renegotiation of the mining tax which the greens want to raise back up to the 40% level that was proposed by the previous prime minister and led to his downfall. A few volatile days are inevitable for the Aussie Dollar as we head into the weekend and as the results come through.
So while the Australian Dollar is weaker, some of that money appears to be flowing into the New Zealand Dollar which is having a small purple patch. That is a tad surprising in light of the Governor of the Reserve Bank of New Zealand, Alan Bollard announcing a reduction in the RBNZ’s inflation forecast to a 5% peak. That reduces the likelihood if higher interest rates and should therefore reduce demand for the NZ Dollar. Clearly the election effect is shunting funds from nearby Australia into New Zealand which means this could be a short lived rally. NZ Dollar sellers should be thinking about their requirements.
In Europe, newspaper reports of rising tensions in Greece have kept the pressure up on the Euro which lost ground against the US Dollar throughout the day. The fact that Greek austerity measures are impinging on every aspect of Greek life is seen as a warning that further social unrest could follow and that would make it even harder for the Greek authorities to muster the cash to pay back IMF and EU loans. Reports that the measures have pushed unemployment to 70% in some areas will not help.
Today’s data is not overwhelming but the UK retail sales, mortgage approvals and government debt levels are very worthy bellwethers to the state of play in the UK economy. We are expecting a fairly sharp decline in retail activity as Brits continue to tighten their belts and anyone who has tried to get a mortgage will not be surprised that approvals are likely to have declined significantly as well. The old adage that a baker is someone who will lend you his umbrella but ask for it back the minute it starts to rain is being highlighted in these figures. The high levels of deposit requirements and the alarmingly high interest rates, when the BOE base rate is at an all time low, are both factors.
And the day is rounded off by leading indicators and wholesale sales data from Canada as well as a US business sentiment index along with the leading indicators index. This latter report is watched very closely by the Federal Reserve for signs of potential economic growth or contraction.
And finally, I know that Friday the 13th is supposed to be dangerous so if I were a 13 year old boy and the time is 13.13 Hrs on Friday 13th, I think I would have tucked myself in a safe place under a duvet or something. Not so a 13 year old boy in Lowestoft, Suffolk who was struck by lightning at that time on that day whilst watching an air show.......in a lightning storm...holding a metal posted umbrella. He will apparently make a full recovery but there are some lessons to be learned here.
But while we think of that, another ‘young man’ is in the news. At the age of 21, Bill Millin stood on Sword beach on D Day and played his bagpipes to rally the troops. German soldiers who were later taken prisoner said they didn’t shoot him because they thought he was just plain mad but his actions have become legendary in the British military and amongst the residents of Normandy. He died peacefully yesterday aged 88 and a statue is to be erected in his memory in Colleville-Montgomery, in Normandy. A fitting tribute to a true survivor.
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