Pound:
Sterling is continuing to trade in a calmer tone after making some small gains late on Friday. The UK is not short of interesting news articles this morning starting with the Telegraph reporting that UK shoppers “could face VAT on food” of between 3 and 5% in a bid to raise billions of pounds in tax and help reduce the national deficit, a ridiculous proposition don’t you agree?
In other news it looks certainly in the short term that any hope of a strong recovery in the housing market is likely to be short lived with Halifax and Nationwide both reporting falls for last month in addition to a reduction in new mortgage approvals for Jan. Further pessimism on the business front was highlighted by the British chamber of commerce (BCC) who have predicted the UK economy will grow by 2.1% next year compared to previous forecasts of 2.3%. “The UK’s economic prospects remain uncertain, our recovery is fragile and risks of a relapse are high. Threats of a double dip recession are greater in the near future than the dangers of higher inflation,” said David Kern, chief economist at the BCC.
In political news (a key contributor to sterling’s recent weakness) Alistair Darling said the government needed to maintain public sector investment to support the economy. “I think to take it away now, to take it away prematurely, as the Conservatives are proposing, would present an unacceptable risk to the economy,” This is an interesting clue as to when the labour party if re-elected are likely to start tackling the current mess with public finances but until certainty over who will run the government is provided the pound is likely to stay trading lower.
US Dollar:
A mixed opinion on the fate of the Dollar presides this morning as investors and traders are split as to how the Dollar will perform in the next few days. With the global outlook improving and risk aversion lifting, the Greenback could be subject to downward pressure as investors move out of the Dollar and into the Euro.
“While the Greek crisis is by no means over, it does appear we are past the worst,” said Mike Jones, currency strategist at the Bank of New Zealand. Conversely, many hold the opinion that the improved jobs data as well as positive retail sales figures will bode well for the U.S. Dollar as well as U.S. equities. The currency markets’ response to the payrolls report is “a resounding vote of confidence for the U.S. economic recovery,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. At the close of play on Friday the Euro had strengthened against the Dollar to $1.3693 from $1.3626.
Euro:
The Euro rose against both the Dollar and the Yen as sentiment shifted towards the positive upon news that Greece will receive the necessary aid from neighbouring countries if it should come to that. French President Nicolas Sarkozy led the way by saying “I want to be very clear: if it were necessary, the states of the euro zone would fulfil their commitments, there can be no doubt in this regard”. Sarkozy said yesterday in Paris after a meeting with Papandreou. It is widely appreciated that the Greek government has done everything in its power to manage its deficit problem and as such renewed confidence is entering the Euro Zone. However, with all this good news surrounding the Euro, a number of traders are cautious about the upward movement, suggesting this climb higher will not have the legs to break any meaningful resistance levels in the near future. It will be interesting to watch the Euro’s performance, if this a sign of things to come or simply a flash in the pan? GBP/EUR 1.1110, EUR/USD 1.367
Quote of the Day
“To conquer without risk is to triumph without glory.” – Pierre Corneille