US Dollar:
Once again the lack of macroeconomic data sees the dollar trade sideways as traders weigh up their options on taking on more risk and moving out of the Greenback and into the Euro or Sterling. With interest rates being a major factor for exchange rates, comments by Federal Reserve Bank of Chicago President Charles Evans suggesting target rates would remain low for the next “three or four meetings.” He reiterated his support for the Fed’s guidance that rates will stay low for an “extended period.”
Positive data has emerged from the US, however, high unemployment and low inflation are factors that have already been priced into the Dollar and as such the levels we are seeing are appropriate for the time being. Once again, the driving force in Dollar movements will be news on Euro Zone and British economy developments as well as commodity price swings. GBP/USD 1.492; EUR/USD 1.357
Pound:
Sterling’s weakness continues today as more news on the UK economy fails to impress the markets. The pound has moved into a one week low against the USD as yesterday’s trade deficit data showed it widened to £7.987 billion in January as expected export growth failed to materialise. Sterling received another blow after Fitch credit rating agency said the UK’s credit rating had deteriorated with the fiscal situation needing urgent attention, before confirming the UK was still within tolerance of it’s top notch rating. “Sterling has been hit by comments by Fitch; the trade data showing weaker exports; and the earlier data on the housing market,” said Hans Redeker, global head of fx strategy at BNP Paribas. “Ultimately, the move on sterling is to the downside.” .
In more downbeat news the Telegraph reported that the UK economy faces the risk of a new credit crunch as banks have to reduce the size of their balance sheets thanks to regulation over the next 3 to 4 years.. The current weakness in sterling is certainly affecting the cost of living through higher import costs but the idea of rebalancing the economy in favour of manufacturing and increased exports is continuing to fail. Let’s hope this morning’s industrial and manufacturing numbers impress the market and show stronger numbers, come on you sterling!!!
Euro:
No changes on the Euro front as the same concerns do the rounds amongst investors and traders. As of yet no decision has been forthcoming as to how Greece is going to recover. Many EU nations have offered their political support but no financial support and Greece is adamant that they do not need outside help, however, Yoshihiro Nomura, a Tokyo- based foreignexchange team manager at Trust & Custody Services Bank Ltd says “money needs to come from other nations in the eurozone in order to rescue Greece”. Recent comments by Fitch Ratings Director Christopher Pryce suggest that in the short term Greece will maintain a handle on their situation, yet the long term does not look so good. He cites the beginning of dissent within the Greek cabinet as one factor that may put a serious dampener on a Greek recovery. This morning sees the Euro up against Pound but down against the Dollar. GBP/EUR 1.100; EUR/USD 1.357
Quote of the Day
To accomplish great things, we must dream as well as act.” – Anatole France