Currency Update – Monday 27th April 2009

Currency Update – Monday 27th April 2009

Sterling was knocked back last week, as first the budget, then the GDP figures, provided two hammer blows to UK optimism. The budget revealed the size of the hole in the government budget, and just how much borrowing, expected to peak at 79% of GDP in the coming years,  was needing to be done. As bad as the borrowing figures were, they were still predicated on expectations for growth way outside what anyone else but the government thinks is possible. The Chancellor stuck to his prediction of positive GDP in 2010, even after the GDP figures were released at the end of the week showing a 1.9% fall in the first quarter of this year. This was much worse than the 1.5% fall expected, however it is only the first estimate, and won't contain some of the more positive, less negative, data out in the previous few weeks, once this data gets worked into later revisions then the figures might improve, although they will still be a cause for concern.

The Pound stumbled after the dire UK news, and was on the back foot throughout Friday as fears that the huge level of borrowing, plus poor GDP figures, might prompt a UK treasury rating downgrade, which would be disastrous for UK finances, making it harder, and more expensive for the government to fulfil it's proposed borrowing requirements. However the Pound gained some support as Moodys announced that there were no plans to review the UK's rating, and the equity markets rallied to finish higher on a more optimistic global outlook. The Pound opens this week back below, 1.11 against the single currency, and below 1.46 against the Dollar.

The global picture has picked up as better than expected housing and durable good orders, coupled with positive corporate earnings reports have bolstered the equity markets. The G7 communique at the weekend also helped out, suggesting that the economic decline may be easing. the Eurozone PMIs came in better than expected, as did the German IFO business climate index. With many seeing the end in sight, commodity prices have started to pick up, copper up 3%, and oil up 4%, although it will only take another bought of worry to bring the prices down again. The Dollar also lost some of it's safe haven demand, slipping against the Euro, which has managed to climb back to around 1.32.

So, although the UK has been suffering, the global picture isn't so pessimistic, however with the markets still skittish, it doesn't take much to start a panic, and the swine few in Mexico is providing a this weeks bogeyman. Fears that it will hurt tourism and travel, causing some uncertainty in the markets and keeping a lid on any equity rallies. Apart from panic about a virus half way around the world, their is the US fed rate decision, and their first estimate of GDP on Wednesday, to give the market something to think about. The Fed aren't going to change a thing, while the GDP numbers are expected to be better than both the UK's and Germany's. We also have the first UK treasury gilt auction since the budget this week, which will show how willing the market is to fill the government's fiscal black hole.

No Comments

Post a Comment