Currency Update – Tuesday 10th February

The data trail was light yesterday so there was little to distract the markets from their recent favourite past time, obsessing over the details and timing of Obama’s bail out plan. Yesterday saw some slow progress on the bill,with Obama himself calling from it to be passed quickly, claiming that the recession could turn into a catastrophe if congress do not put aside the usual internecine bickering and vote for the bill. Obama claims the bill will create, or save, 4 million jobs, which at the current rate of decline covers only 8 months worth of job losses, but that could be enough to stabilise sentiment and start a recovery. As well as the stimulus bill the markets are also waiting for details of yet another rescue plan, this time delivered by Geithner, the new Treasury Secretary, and as Sterling tends to correlate closely with global financial stocks, this is what could give the Pound a further boost. Sterling continues to hover in a range between 1.4850 and 1.50 against the Dollar.

The Pound did receive some good news yesterday as Barclays bank announced a profit for 2008, an announcement that also saw their share price jump over 10%. The Pound also benefitted from some surprisingly good news overnight as the BRC retail sales index showed a 1.1% jump in sales in January compared to the same period last year. The rise is unexpected and is almost certainly due to heavy discounting in the January sales which helped slow the decline in non food sales, while food sales themselves jumped up 5.1%. This news was tempered by the RICS house price survey which showed house prices falling, contradicting other measures which saw a rise last month. The survey also showed many surveyors expected prices to keep falling, although it did report a slight rise in enquiries for houses, which may be an indication that the rate cuts are starting to stimulate some activity; of course this activity is unlikely to pick up much while mortgage lenders are asking for such large deposits before loaning out money, and this isn’t likely to happen until the market bottoms out. Sterling has kept table hovering around 1.15 against the Euro.

It’s another quiet day, with just the trade balance figures released for the UK, these will show whether the weaker Pound has given exports a boost, although with reduced demand for exports, coupled with imports costing more, although demand for them will be lower also, the deficit may widen rather than narrow, at least until foreign demand picks up. Apart from this we have some middling data out from the US, although once again the actions of the US government will be taking centre stage with the Treasury Secretary outlining the financial rescue program later this afternoon, which if to the markets liking could give risk appetite, financial stocks, and by association Sterling, a boost.