Currency Update

Currency Update

The UK got a breather yesterday after a depressing and gloomy start to the week, so the focus was largely on America which had a big bunch of data released yesterday afternoon UK time. The data on the whole was weaker than expected, Industrial production fell, the manufacturing survey showed a fall in activity, the housing numbers weakened, and jobless claims increased; this has slightly weakened the Dollar has traders pare back their expectations of a rate rise this year, although there is not enough in the data to make anyone think that the Fed will cut again. There was some positive news for the Dollar as the Senate agreed a deal to back a housing rescue plan involving the two huge government back mortgage companies, Freddie Mac and Fannie Mae; however this wasn't enough to reverse the impact of the economic data and the Pound climbed up against the USD above 1.95.

The Euro yesterday was supported by news of better growth in both Germany and France (the Eurozone biggest economies), however comments from ECB president Trichet that growth may not be healthy in the coming months, held back the Euro keeping it around 1.55 against the USD, and kept Sterling around 1.26 against the Euro.

Over the other side of the world the Aussie Dollar continues to be supported by commodity prices and domestic growth, but the situation in New Zealand is very different. NZ interest rates are amongst the highest in the world, sitting currently at 8.25%, but they are likely to start coming down heavily as retail sales dropped heavily (a 1.2% fall), which when coupled with a falling housing market, and a sharp drop in employment, paints a grim picture of the economy. It is likely that the central bank will start to cut rates steadily even though inflation is not as low as perhaps they would prefer. The Kiwi fell yesterday to a 3 month low against the USD on the back of the retail figures, and the Pound has climbed to around 2.55 against the NZ Dollar.

The UK still gets a rest from data today, although next weeks data releases are likely to continue the gloom, and it is a quiet day all round with just the Eurozone trade balance and a US confidence survey for the markets to get it's teeth into. The Us data will continue the weak trend, and the Eurozone trade balance is expected to widen slightly, but not significantly. With little data out, the market may well dwell on the past weeks economic news, which is likely to keep the Pound on the back foot throughout the day.

Michael Corcoran - Assistant Manager |Treasury Solutions | nabCapital™ | A division of National Australia Bank Limited

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