Currency Update – Tuesday 31st March

Currency Update – Tuesday 31st March

The news in the UK has been focused on the near collapse of yet another Scottish institution, and of course the private viewing habits of Mrs Smith's husband, who had the pure cheek to ask the taxpayer to pay for them, over in the US it was Obama once again making the headlines, this time by his administration rejecting restructure plans for General Motors and Chrysler, with a threat that they will cut the umbilical cord attaching the failing car companies to the US taxpayer, unless they 'fundamentally restructure.' Geithner also commented that some banks would need 'large amounts' of further assistance, and stock markets fell, the S&P500 by 3.5%, the FTSE by 3.5%, while the DAX fell by 5.1%.

The US wasn't the only country to suffer bad financial news, S&P have lowered Ireland's credit rating to AA+ and placed it on negative watch. The downgrading may help explain some of the Pounds gains against the Euro, up to around 1.08, but in fact the currency markets were broadly stable yesterday, although the Pound did also manage to recover some of it's previous sharp losses against the Dollar, however Sterling only managed to climb back to around 1.43. The Pound has received a little boost today from better than expected Marks and Spencer sales, while news that Barclays wouldn't need to take advantage of the governments asset scheme, also helped.

The Japanese economy has gone from bad to worse, after a 10.2% fall in January industrial production fell a further 9.4% in February. The Yen's safe haven status was built upon a strong trade surplus and a positive current account balance, and although the latter may stay positive, the trade surplus has changed into a trade deficit, and is likely to stay that way for 6 months at least, with the strong Yen making Japanese exports less attractive. The Pound has stayed around 1.40 against the Yen, while the Dollar has remained steady at about 98. As time drags on, the market, and the Japanese government are certain to drag the Yen lower.

As state leaders trickle into London today for the G20 meeting, and riots, tomorrow, the data calendar is quite light. We've had German unemployment data which was worse than anyone expected and later in the day we get the Eurozone CPI, which is expected to fall further opening the way for the ECB to cut rates later this week. The markets are likely to stay tentative before this weeks summit, as traders wait to see what, if anything, will come out of it.

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