US Dollar:
The Dollar reached a nine month high against Euro as the Federal Reserve raised the discount rate charged to banks for direct loans for first time in 3 yrs. The dollar rose to $1.3466 per euro as of 6:40 a.m. in London from $1.3527 yesterday in New York, after climbing to $1.3444. These actions are a surprise move, coming ahead of analysts expectations but suggest the US is coming out of the recession much faster than its peers. “Certainly, it is the perception of markets normalizing,” said Alan Ruskin, global head of currency strategy for RBS Securities. “So it does give a sense that the Fed is more confident that the economy is” on the right track to recovery, he said. The move was well received by investors who put faith in the Greenback.
Two strong currencies, the Australian Dollar and New Zealand Dollar were both down against the US Dollar despite fairing much better with the global recession. An interesting comparison sees the US raise the discount rate from 0.5% to 0.75% whereas Australian and New Zealand rates currently stand at 3.75% and 2.5% respectively. This morning sees the Dollar up 0.82% against Sterling and up 0.24% against the Euro. GBP/USD 1.540 EUR/USD 1.349.
Pound:
Sterling has seen sharp losses overnight and coming into this morning as the latest government borrowing data for the UK bites. Yesterday’s data revealed that the UK government needed to borrow more money in January as a weak economy reduced income from taxation. Net borrowing was more than £9bn ($14bn, €10bn) higher in January than a year earlier, as the government faced a deficit of £4.3bn compared with a £5.3bn surplus in January 2009. In other news for the UK economy the Bank of England said yesterday that lending to British businesses fell by £4.3bn in December (a record pace) highlighting again banks’ hording cash and curbing lending. As banks try to recapitalise, lending criteria is continuing to tighten in addition to lower lending volumes which is effectively hindering any strong recovery in the UK.
Key UK retail sales data is due at 9.30am this morning and forecast at –0.5% any lower number here could easily push sterling down further especially when we consider how important consumer spending is to our economic growth. Have a wild weekend!
Euro:
The divergence between the Euro and the Dollar seems to continue as nothing of great significance has improved the Euro whereas economic news from America saw investors move away from the risky Euro into the Dollar. Germany, a leading economic country in the Euro Zone, is split on how to proceed. A weak Euro cannot be sustained in the long term, however, the weakness of the Euro of late has helped Germany stay competitive with its exports. It is this type of indecision that has caused any positive sentiment towards the Euro to disappear. The slight glimmer of hope on the horizon for those holding Euros right now is that the Euro has strengthened against the pound as poor data from the U.K has seen the pound dive against many, if not all, of its major trading pairs. GBP/EUR 1.1405 EUR/USD 1.350
Quote of the Day
“I have found that if you love life, life will love you back.” – Artur Rubenstein