Currency Update – Monday 6th April 2009

Currency Update – Monday 6th April 2009

As the weather improves and the trees start to bud, there are signs that there is also budding optimism in the markets, if not actual green shoots of recovery in the economy. The G20 meeting has helped the revival of optimism, as have the successful raising of $17.7bn of capital by HSBC, in the UK's largest ever rights offering, and comments from Bernanke that the strategy to ease the financial crisis seems to be working. The S&P500 managed to rise up again on Friday, and has now climbed 23% in just 4 weeks. Friday did bring the non-farm payroll report, and this showed a further large loss of jobs in the US as expected, but just as the coldest hour of the night is just before dawn, traders are looking to when the measures have hit their lowest point, after which things will improve, and some think that point may be in sight.

The hope that we may be nearing the lowest point has given Sterling a boost, allowing it to climb up above 1.49 against the Dollar, and above 1.10 against the Euro, shaking off the less than expected rate cut by the ECB on Thursday. The Euro itself has held onto it's rise against the Dollar keeping to around 1.35.

The Pound has also risen once again against the Yen, which may be used less as a safe haven currency at the moment, but is still weakening as risk appetite returns. Whereas normally the Yen benefits from repatriation of funds as investors bring their capital back to Japan, this year has instead seen many Japanese investors buying foreign bonds, a trade obviously helped by the strength of the Yen, and this has led the Japanese currency to lose some of that strength, although it still remains historically strong, certainly strong enough to damage Japanese exports. The Pound has managed to push above Y151, after falling to below Y120 in January.

There is no data out today, but the week ahead does bring an MPC meeting, Industrial production data, and the producers price index. The Optimism experienced last week has come from some forward looking surveys which seemed to show a slowdown in the rate of things getting worse, this week the data is mostly backward looking which means it is likely to stay weak, but shouldn't hurt the Pound too much, and the general mood of the markets is more likely to be determined by the comments from the biggest players in the markets, which happen to be governments at the moment.

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