Currency Update – Monday 10th November

Currency Update – Monday 10th November

Sterling has stayed soft over the weekend as the size of last weeks rate cut and the downgrading of global growth expectations from the IMF have weighed on the Pound. The revised expectations from the IMF also mentioned the UK economy directly, predicting that it would be the worst performing of the major economies. No help was forecoming, for the GBPUSD rate,  from a much worse than expected US non-farm payrolls report, which saw employment fall by 240k, previous months figures revised to bigger falls, and the unemployment rate climbing from 6.1% to 6.5%; none of this helped the Pound which has stayed weak against the Dollar down around 1.5750, and slipped against the Euro down to 1.2250.

The Dollar may have gained a bit of support from President-elect Obama's speech in which he gave precedence to the economies' problems, as if he could do anything else, and said he would meet the problems 'head on'. However the main news from the weekend comes from the Chinese government who have announced a government spending plan of $586bn, designed to help stimulate their domestic economy, with most of the money spent upon infrastructure, such as roads railways and airports. The size of the package is huge, relating to roughly 7% GDP per year, for the next two years, and as the money is being spent upon civil engineering projects it is likely to support commodity prices, with Oil receiving a bump up above $60/bbl on the back of the news.  
The highlight of the data trail this week will be Wednesday's BoE Quarterly inflation report, which after last weeks rate cut will be watched to see just how far rates can some down further. Of course inflation may not be the BoE's prime concern at the moment, although it should be according to their remit, but the report and the associated press conference afterwards, will give some insight into the MPC's thoughts.
Today we've had the Producer Price Index which has shown factory input costs falling by 5.6% in October, halving the annual input price inflation to 13.8%, as the falls in metal, oil, and other commodities start to feed through. As when the producer price index was climbing upwards leading the high street inflation, now it is falling the expectations are for the CPI to follow, although that may not be for a few months yet. The fall in the figures has not effected Sterling which is likely to be led by the reaction of the equity markets to the Chinese government spending plan, although as Sterling is start from a soft position the week could be hard for the Pound.

Michael Corcoran |Treasury Solutions | nabCapital

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