FX Market Overview

The EU may have cleared the hurdle of shoring Greece up for a while but the debt crisis isn’t over; not by a long chalk. While all the behind the scenes plans are put into place to ensure Greece now does all that it has agreed to do, the focus has shifted towards ensuring the contagion doesn’t spread to Spain and Italy. EU leaders will spend the next few days and the weekend’s G20 summit to try to amass something approaching a trillion Euros from external sources with the intention of using this money as a ‘firewall’ between debt and default for the other troubled economies within the Eurozone. However, the IMF and others aren’t going to be too keen to stump up oodles of cash to bolster such troubled economies after Greece was allowed to walk away from more than half the debt it owed to non-public creditors. After all, ‘Lend me some money and you might get some of it back’ isn’t the most attractive offer. Nevertheless, the Euro maintained most of the strength it derived from Monday’s Greek debt agreement.

Away from the EU, the British Chancellor of the Exchequer heaved a sigh of relief yesterday. No matter where you were in the UK, you probably heard it. Government debt figures showed a much larger than forecast drop in government debt and there were two interesting aspects to the figures. Government income was up by £1.6 billion from last year; largely due to higher receipts from businesses, and in spite of the cuts we are reading about every day, spending was also up. Many are now speculating that a few minor tax cuts may be waiting in the next budget and most are reasonably satisfied that the warnings Britain may fall into a 2nd recession are being overstated. Sterling had a reasonably good day; maintaining its position against the Euro but losing just a little against the US Dollar. This morning’s release of the Bank of England meeting minutes will be the highlight for Sterling traders. We are expecting a shift in the Monetary Committee’s emphasis and perhaps further calls for an expansion of the quantitative easing program
The lack of substantive US data meant the USD was purely driven by risk aversion in Tuesday trade. Europe is a major concern and Iran’s feisty talk just ads to the uncertainty. In these circumstances, investors tend to look for a safe place to hide. It appears US shares are seen as a safe place; the Dow Jones indices are back at pre-2008 levels, largely due to the spate of improving US data. I’ll bet Barack Obama is chuffed to bits that America is seeing improvement as he mounts his campaign to be re-elected. I also bet that Nicolas Sarkozy and would give his entire collection of height enhancing shoes for a similar election year boost. We only get a little housing data from the US today so expect more of the same as far as the USD is concerned.
Overnight news that China’s businesses are less optimistic than last month and are expecting a slowdown is interesting. It points to further weakness in the Chinese economy, largely due to the slowdown in China’s main export markets. It also points to a slowdown in demand for imports into China and that weighs on Australia and New Zealand. Both Australasian Dollars weakened a little on the news. The silver lining is that this makes it cheaper for those importing from or migrating to these destinations.
Most of today’s data has a European flavour. We get both manufacturing and service sector business sentiment indication in the form of Purchasing Managers Indices for the Eurozone as a whole and for Germany in particular. The general market perception is that these will be better than the previous month but the fact that the Greek debacle is still rumbling in the background may undermine that view. If that is the case then weakness in the Euro is likely.
I will leave you with a typical Daily Mail story but one that makes me fume. People organising street parties for the Queen’s Jubilee celebrations are being told by local councils that they have to have at least £5 million of public liability insurance to make sure they are covered if their bunting garrottes someone or if a party hat smothers the wearer or, I suppose in case a cup cake attacks a passer-by causing a life altering whip-lash injury. Throughout history, Britain has had had street parties and managed very well without a pushy council jobsworth telling us how to do it. It is such tosh and nonsense. The rest of the world survives without all this red tape drivel. We pay these people’s salaries with our taxes and they get better pensions than us and we pay for that as well. Why aren’t they fixing pot holes rather than issuing these daft edicts? Perhaps they should be insured against forgetting to collect my rubbish bins on time. Grrrrrr
That aside, have a great day everyone.