Pound:
The pound remains under a pressure (no surprise there) staying within the 1.10 level seen late on Friday and moving down lower against the US Dollar into 1.49. The latest worry in the market revolves around the possibility of a double dip recession in the UK highlighted by Andrew Sentence last Thursday who helped stimulate this concern.
The pound is also weaker from a reduction in risk as investors buy back the safe haven USD after India’s surprise decision to raise interest rates and create investor doubt over the pace of growth in emerging markets and globally.
The calendar for economic data is particularly light today with a speech by Mervyn King the highlight of the day, He will speaking about risk and uncertainty in London this afternoon and the market will undoubtedly be listening to his comments carefully. We then have a much more data heavy day tomorrow with the release of mortgage approvals, inflation and retail/wholesale sales volumes. Sterling volatility continues…
US Dollar:
The Greenback was up in trading against all of its 16 major currency pairs after the unexpected decision by the Reserve bank of India to raise borrowing costs. The RBI rate increase was met with concern as any slowdown in the growth of India may spark fears of a double dip recession. As such, many investors bought the dollar as a safe haven option against riskier investments. It is widely anticipated that China will follow India with a rate increase of their own in order to slow down huge growth and curb inflationary pressure. Consequently, many Asian stocks fell as investors moved towards the dollar amid monetary tightening by major economies.
The dollar traded at $1.3506 per euro as of 7:20 a.m. in London from $1.3530 last week, after earlier rising to $1.3498, the highest level since March 2. “A lot of Asian currencies have strengthened because of equity inflows lately,” said Nizam Idris, a currency strategist at UBS AG in Singapore, but “If you hike interest rates, the equities market will react negatively first. That would basically take away the recent driving force” for currencies. The Dollar looks increasingly beneficial right now as the first thing many speculators will do upon hearing news of a potential slowdown is move away from commodities.
Euro:
The Euro is trading within tight ranges this morning as uncertainty clouds the judgement for investors. “Ahead of the EU summit, concerns about Greece’s funding difficulties are expected to weigh on the euro,” said Danica Hampton, a senior markets strategist at Bank of New Zealand Ltd. in Wellington. March 25-26 is the date to look out for as this is when the EU should spell out its plan for a rescue package for Greece. Much news of late has focused around the very mixed signals from the Euro Zone on what to do next. Many ministers are split as to whether a bailout is the right option. Whilst a decision on Greece may reduce concern for the Euro Zone in the short term, any disagreements (mostly likely from Germany) may spark further Euro losses as investors shy away from investing in a highly politically charged atmosphere. EU leaders must not create “illusions” for markets by building expectations for Greek aid, German Chancellor Angela Merkel said in an interview with Deutschlandfunk that aired yesterday.
Quote of the Day
“If you play it safe in life you’ve decided that you don’t want to grow anymore.” – Shirley Hufstedler