Pound:
Sterling is continuing to trade lower against the Euro and USD as we saw on Friday afternoon, after poor UK sales data. The market remains concerned over the health of public sector finances in the UK and the political situation after the general election in June. An article in the Telegraph (yes that paper again) reported that the UK’s business environment will “never return to pre-recession normality” and weak economic growth is likely to continue until 2015. This seems a rather long terms projection for me but does highlight ongoing concerns for British businesses. The pound right now looks particularly vulnerable against a strong USD after a bad week for UK economic news in contrast to the US and the federal reserve’s decision to increase the discount rate (emergency loan interest rate to banks). Howard Archer, chief UK economist at IHS Global Insight, said: “Weak retail sales in January reinforce concerns that the UK economy could suffer a ‘double dip’ in the early months of 2010, after staggering out of recession in the fourth quarter of 2009, as some of the temporary factors that have been supporting activity are removed.” There is no UK data due today.
US Dollar:
The initial announcement that the Federal Reserve would raise interest rates caused the Dollar to surge against both Sterling and the Euro as the rate raise signalled renewed strength and good risk factors in the US economy. Whilst this is true, the initial reaction was somewhat overly positive as much of the gains on Friday had been paired back by the close of play. This was down to traders realising that the rate raise was not as significant as first thought and that a following Federal interest rate rise (tightening of monetary policy) was not going to follow. Regardless, this move shows that the US is now looking ahead towards economic growth and the avoidance of a double dip recession. We can expect the Dollar to remain strong for the foreseeable future, Geoffrey Yu, a strategist at UBS AG, the world’s second largest currency trader, says the euro may test $1.30.EUR/USD 1.360 GBP/USD 1.546
Euro:
As the Greek saga drags on so does the ever changing value of the Euro. This morning sees the Euro edge higher against the Pound as news of a EUR 25 Billion bailout package was put forward by the media in Germany. However, market sentiment points towards further Euro falls as the ECB will have to keep interest rates at an all time low. “It seems that we may now be at a degree of extreme bearishness that a significant bounce in euro is more likely,” said RBS Foreign Exchange Strategist Greg Gibbs. Unfortunately, with many other countries in poor financial health the monetary policy plans to help Greece may not be quite right for the other suffering countries, Portugal, Spain, Ireland and Italy. A “one-size-fits-all” monetary policy may not be sufficient in the long term for the Euro Zone and its range of problems. GBP/EUR 1.135 EUR/USD 1.360
Quote of the Day
“Worry often gives a small thing a big shadow.” – Swedish proverb