Pound:
Sterling lost small gains against the Euro as the day progressed yesterday in addition to losing over 1 percent against a strong USD. Today in the aftermath of the budget the pound has picked up again, trading over 1.12 against the Euro and 1.4950 vs. the USD ahead of UK retail sales. Retail sales are expected to show a pick up from last month, which were sharply down by –1.8% partly due to the snow.
Darling lowered his forecasts yesterday for public borrowing and confirmed plans to half the deficit in the next four years but many thought this budget was extremely short on providing a detailed action plan. However the market knowing it would be a political budget is putting more emphasis on the election result favouring a conservative majority vote as the more favourable party to tackle the deficit. Richard Lambert , director general at the Confederation of British Industry summed up thoughts on the budget “With the election just weeks away, this was a clever, political budget. However, anxiety remains on how the deficit is going to be paid down, and the growth forecasts for 2011 and beyond are still on the optimistic side.” For now it looks as if any sterling gains should be taken full advantage of before we reach a heightened level of market volatility.
US Dollar:
The continued strength of the dollar is starting to suggest that we are now seeing a break towards a long term trend of strength. Whilst this is just a rumour doing the rounds in the city, recent economic data as well as strong political force in the states has seen the Greenback become the currency of choice whilst many other economies still look to be on shaky foundations. Goldman Sachs, well known for their huge bonuses and market knowledge, did get the dollar/euro bet wrong. A note from 5 analysts revealed that they expected the euro to appreciate against the dollar with a sell order to be placed at $1.3500.
The euro traded at $1.3327 as of 12:17 p.m. in Tokyo from $1.3315 in New York yesterday. It earlier dropped to $1.3306, the lowest level since May 7. Once again, the dollar is edging up as a result of other factors on the global stage.
Oil inventories were much higher than expected, lowering demand and price for the commodity, which in turn has seen investors move into the dollar. Sterling took a hefty tumble on the back of the budget speech, trading as low as $1.4854. This morning sees Sterling clawing back some losses, up 0.40% at $1.4923.
Euro: Today sees the start of a two day summit bringing together EU ministers in order to discuss current affairs, one topic that will not be given too much attention is the Greek crisis. “It’s highly unlikely that anything is announced at the EU meeting today,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London who forecasts the euro will slip to $1.30 in the coming months. “The meeting is likely to be disappointing for financial markets and the euro specifically.” Already down on the day yesterday, the euro took another drop lower to hit new lows when ratings agency Fitch downgraded Portugal, giving the country a “negative” outlook. No doubt this downgrade will reignite the argument on the contagion effect to other countries.
Many speculators will not need much of an excuse to short sell the euro, just announced Italian retail sales came out very weak, on the back of very poor French consumer spending figures that also came out this morning. Despite the torrent of poor news on the euro zone, this morning sees the euro rallying against the dollar, reaching session highs. Whether this rally is a result of bouncing off a support line or, in fact, traders feel the euro has suffered enough is anyone’s guess.
The euro has been trading in ranges lately and any strong rally may be subject to correction on the downside tomorrow. All eyes on the summit for the time being.
Portugal Debt Rating Cut by Fitch on Worsening Finances
Quote of the Day
“Time you enjoy wasting, was not wasted.” – John Lennon