FX Market Overview

Happy New Year to all our Chinese readers and have a great week off.
I don’t know what it is but I am struggling with the logic of giving the green light to the High Speed rail link to Birmingham. Why an expensive train rather than to some other major construction project like urban regeneration or brown field site reclamation or something? It seems that the only people escaping the full wrath of the recession are the very wealthy; footballers, bankers, showbiz types and RPGs (that’s Rich Pointless Girls like the Ecclestone daughters and Tara Palmer Tomkinson) but I can’t see why we should make it quicker for them to get from London to Birmingham because they are the only ones who will be able to afford the tickets and what has Birmingham done to deserve that?
Another government project that appears to have little point is the on-off plans to rescue Greece. One minute the Greek authorities have reached agreement with their creditors and the next minute it’s off, one minute the EU Ministers have reached an accord on the way forward to rescue the Eurozone and the next minute it is all reliant on yet another meeting. No wonder the markets are so uncertain about what to do with the euro. The credit ratings agency, Fitch thinks a Greek default is already factored into the value of the Euro but I would hazard a guess that if Greece cannot agree a plan with those they owe money to, the euro will still be hit. The euro remains rather weak in spite of better than expected bond auctions in France and Spain. These had been approached with a lot of trepidation after both countries had their debt ratings downgraded earlier in the month.
Sterling had rather a god Friday after UK retail sales for December met market forecasts of 0.6% growth. It has to be expected that a lot of that growth was created by discounting so there may not be as much profit in there as retailers would have hoped for but turnover could be a decent prelude to further profit if properly managed. This week brings government debt levels and the 1st estimate of UK economic growth for the 4th quarter of 2011. There has been a lot of speculation over whether the UK is back into recession or not. Most market analysts believe the British economy grew by 0.5% in the year to December and that is pretty lame but growth nonetheless. Sterling will do rather well as long as the actual figure meets that target or betters it. There is clearly confidence in the UK economy though, China is buying into our water companies, Warren Buffet has taken a sizeable stake in Tesco’s and other supermarkets are planning expansion. It would be nice for those who have to sell the Pound for whatever reason if some of that confidence could convert into more substantial Sterling strength.

The US economic growth data for q4 is also published this week but that is likely to be a rather more upbeat affair with 2.6% annualised growth or thereabouts. The confidence that economic growth and recovery is building in America can be seen in the flow of funds away from the low yielding US treasury certificate and into higher yielding assets elsewhere. That is one of the main reasons for the Euro -US Dollar exchange rate flirting with $1.30 again last week and for Sterling’s excellent showing against the US Dollar over recent days.
Stronger Chinese data over the last week has boosted the Australian and New Zealand Dollars which benefit from Aussie and Kiwi exports to China. The fact that China is now on a week long, New Year celebration should slow the advance of the Australasian Dollars but perhaps not for long. That said; both currencies are substantially overbought and ripe for a correction. Whether we will get a correction from here is an open debate.
And finally, it seems you can only get on in American politics if you have a single syllable 1st name. Newt, Mitt, Rick, George, Bill. So Barack is always at a disadvantage. Maybe that is why he has chosen to sing a line from an Al Green song at a rally in Harlem. Perhaps singing is his Unique Selling Point; that and a two sylable first name. A guy’s gotta do what a guy’s gotta do I guess.