Currency Update

Currency Update

It seems the high price of fuel is now a daily headline news item, yesterday's fuel protests by the hauliers have raised the prospects of another government climbdown over fuel taxes and vehicle excise duty. Of course the French fisherman have been protesting over high fuel prices for some time, so maybe they will all be relieved to see the price of oil drop down under $130 per barrel as rumours that Russia will increase supply, and an expected drop in demand as countries in the far east start to drop their fuel subsidies, have helped ease price pressures. Gordon Brown meets oil industry leaders today to discuss how they can mitigate rising fuel costs, but unless Gordon is willing to cut taxes on fuel, which currently making up well over half the price at the pump, or the producers are going to pump out more oil, there is little anyone can do to change the market.

The inverse correlation between the price of oil and the US Dollar kept up yesterday as in spite of broadly weaker US data the Dollar enjoyed a brief resurgence. The data came in the form of a disastrous consumer confidence survey, showing confidence falling to it's lowest level since 1992, although there was some good news in new home sales jumping 3.3%, against an expected decline, but with house prices falling by 14.4% yoy, the housing market has a way to go yet before it recovers. There were also comments from a Fed reserve member to help out the Dollar, as Yellen believes that the interest rate cuts, and federal government tax cuts, should be enough to restore moderate economic growth later this year.

With the Dollar gaining some benefit from the figures, the weaker news from the Eurozone has sent the Euro down around 1c against the Dollar. Yesterday both the French business, and the German consumer, confidence survey's showed a drop, but as with the Dollar a central bank speech helped the currency, this time an ECB member described the prospect of rate cuts in 208 as wishful thinking, and again talked of the option of a further rise in interest rates.

Although the confidence figures in the Eurozone and the US have led the Euro lower against the dollar, it still sits around the same level against the Pound around 1.2550, and Sterling has not moved far against the Dollar either hovering around 1.98 in this morning's trading.

There is a dearth of data this morning, so the FX markets are likely to take their cue from equities and commodity prices. This afternoon the US does step in to fill some of the void, with durable goods orders which are expected to post a large fall, as heavy industry cuts back on it's orders, which is likely to damage the Dollar's mini revival.

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

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