Currency Update – Thursday 11th September

Currency Update – Thursday 11th September

With England firmly back as favourites for the 2010 world cup, one could hope that the lifting of the national mood may help boost the economy and drag us out of the recent slump. The UK certainly needs something to lift it's spirits, and it's not going to be the weather, after the European Commission concurred with recent UK predictions for declining growth in the last two quarters of 2008. The commission also cut it's predictions for Eurozone growth, and comments from the Luxemburg's loquacious Finance Minister Juncker that the euro is still 'overvalued' and again reiterating the risks of a recession haven't helped. All of which has led to Sterling ticking up higher again against the Euro towards 1.2550.

The Dollar continued it's climb higher as the price of oil fell below $100/bbl yesterday, mostly on prediction for slower global demand. The Dollar has been creeping upwards, it is forcing the GBP/USD rate down towards 1.75, and the EUR/USD rate down towards 1.39, below 1.40 for the first time in a year, in spite of some actual figures of just how troubled Lehman Brothers bank is as they report losses of £2.2bn for the 2nd quarter of 2008.

The Antipodean currencies have especially suffered recently as falling commodity prices, and declining domestic economies have dragged the value of their currencies lower. The problems faced by the New Zealand economy have pushed New Zealand's central bank to cut rates in July, and to follow up with a surprise 0.5% drop in August, in spite of inflation holding above their target range, which is the same as the BoE's at 1% to 3%. The central bank are predicting three quarters of negative growth in 2008, but extra rate cuts will be dependant upon how inflation and the currency react. The NZ rate cut has caused the NZD to drop as if it was hit by a Croatian elbow, allowing the Pound to climb above 2.71, a jump of almost 9c over 24 hours. The AUD also suffered falling over 3c and allowing the Pound to climb above 2.20

After a quiet few days on the data front today we get a few releases. This morning's key even will be Governor King's testimony to the Treasury Select Committee. As the minutes haven't been released from the last rate decision, the markets will be interested in any hints as to the MPC's latest interest rate outlook. The risks for Sterling are evenly poised, any signs of concerns over growth will be taken as a sign of rate cuts this year, while holding the line on inflation will be taken as pushing cuts back to 2009.

In the afternoon we have US trade balance and weekly jobless claims. the trade deficit is expected to widen, not helped by a stronger USD, but it would take a significant movement to hurt the recovering Dollar.

No Comments

Post a Comment