Pound:
There was little data yesterday to move Sterling in any purposeful direction this morning, although after its recent decline there were signs that traders were taking advantage, allowing the Pound to correct itself slightly against the other majors in early trading. Pressure was still on the Pound however as a result of Germany’s reluctance to assist Greece with her debt burden, with investor’s preferring the safe haven Dollar than the UK currency on the back of news of this type. This could be reversed in the short term, with ECB President Trichet hinting that the ECB wouldn’t be opposed to bilateral aid from other E.U members. Until a financial proposal is laid out however, the Euro and consequently Sterling will remain under pressure.
There is a significant amount of data released today that could move Sterling, including inflation figures, Consumer Price Index and mortgage approvals. There is no positive expectation of a resulting upward move on the Pound as a result of these however, with figures likely to steady the faltering Pound. A fall in mortgage approvals and unchanged retail price index are expected.
Tomorrows annual budget release due at 12:30 GMT could put further pressure on Sterling, especially if the economic projections accompanying the figures are downbeat, as feared.
Update : Inflation figure falls to 3% BBC News
US Dollar:
The greenback continued its appreciating march against both the Euro and Sterling as investors are mulling over the prospects for Greece, more specifically whether or not a viable solution is forthcoming. Until such a time, the dollar will remain the currency of choice whilst risk aversion continues. The dollar climbed to $1.3523 per euro as of 6:53 a.m. in London from $1.3558 in New York yesterday, when it rose to $1.3464, the highest level since March 2. The greenback advanced to $1.5065 per pound from $1.5100. Some technical analysis suggests GBP/USD will be trading between 1.500 and 1.5120/30 as yesterdays dip below 1.500 lacked momentum, thus Sterling climbed back slightly to close above this level. The same can be said of the Euro, currently trading above $1.3485 – a key resistance level. A fall lower is likely to see an increase in downward pressure.
A very interesting situation is developing between China and the US, America are calling for the Yuan to appreciate in order for American exports to become more competitive, thus reducing the US trade deficit, however, China is adamant that it is not their fault and any actions by the Americans could have serious repercussions. US experts currently think that the Yuan is undervalued by 40%. There are other issues to consider here but either way, for those with an interest in FX policy, this saga could be very interesting to watch.
Euro:
With the outlook for the Euro looking particularly fragile, Jean-Claude Trichet did not help matters by voicing his disagreement with offering low-interest loans to Greece. One major factor that is crippling the Greeks is the interest on its debt, whilst its debt levels remain high, the real issue is the cost of servicing said debt, especially when debt holders are not offering to accept lower interest rate levels or suspend interest payments momentarily.
All eyes are on the upcoming summit, unfortunately many believe Greece will leave empty handed, “There shouldn’t be any subsidy element, no concessionary element” in a potential loan to Greece, Trichet told lawmakers in Brussels yesterday. Merkel said in Berlin that there’s no need for EU leaders to make any “concrete decisions” on Greek aid this week. It is exactly this type of sentiment that is not doing the single currency any favours. The major currency to benefit from this has been the Swiss Franc, near a record high on speculation that the SNB will relax its policy on selling its currency. EUR/CHF1.4342. This morning sees the Euro holding on, currently up
on Sterling by 0.18%, whilst down on the USD by 0.22%.
Quote of the Day
“You can’t turn back the clock, but you can wind it up again.” – Bonnie Prudden