Currency Update – Tuesday
As Gordon Brown flew to Japan for the start of the G8 meeting to discuss poverty and the world food crisis, he told us all that we waste too much food, so we can safely assume that Gordon cleared every plate of his 19 course meal, and also let little of the exclusive wine list go to waste. While Global leaders were tucking into their feast and discussing the global food shortage, the Pound was stumbling into a new week. Industrial productions figures fell by 0.8%, while manufacturing figures dropped by 0.5%. Both these measures were far worse than expected, and Sterling suffered. There was also rumours in the UK banking sector that some of the smaller lenders were struggling to raise capital in the face of the credit crisis. Sterling fell below 1.26 against the Euro, and briefly dropped below 1.97 against the US Dollar before climbing back.
Sterling’s dip below 1.97 was also caused by a strengthening Dollar, which climbed on the back of comments from a Fed official that the upside risks to inflation were starting to outweigh the downside risks to growth. The comments pushed up the Dollar sending the Euro to a 2 week low around 1.5650, before news that the two huge government backed mortgage finance companies may have to raise more capital to cover their lending and to comply with new regulations, limited some of it’s strength. The US Dollar is still up from this time last week, and even though the G8 meeting is very unlikely to even discuss never mind make an actual statement, the fact that the leaders are meeting is still likely to give the Dollar some support.
The Australian Dollar been sitting very strong against both the US Dollar, up around 0.95, and the Pound, which sits around 2.07 against the AUD. we’ve not heard much about the carry trade strategies recently, but it is still the best explanation for the continuing weakness of the Yen and the strength of the Aussie Dollar. Just as the Japanese wage bonus season, and the search for foreign yields better than Japan’s meagre returns, has kept the Yen weak, it is also having an effect and keeping the Australian Dollar strong. Once the bonus season ends and the demand starts to lessen the AUD may start to weaken.
We have house price data in both the UK and the US today. The UK has what is considered the most accurate, but also the least current, survey which records the value of completions as opposed to offers or advertised values. As the survey is a few months behind other surveys it is often old news, but it is likely to continue to confirm the declining state of the housing sector. In the US we have further pending home sales figures which are expected to drop back into their weak trend, after last months surprise 6% increase.