Currency Update – Tuesday 3rd March

Currency Update – Tuesday 3rd March

The grey skies over Yorkshire this morning seem to reflect the markets mood as the negative economic news just keeps piling up. After the terrible GDP figures for the US last Friday, we've had bad manufacturing figures from both the Eurozone and the UK. Once again the bad news has strengthened the US Dollar as safe haven transactions flow into the world's most heavily traded currency, this is in spite of the American insurer AIG reporting losses than have dwarfed even the UK banks record, losing $61.7bn in Q4 2008, and receiving a further $30bn funding from the US government. The S&P500 dropped 4.66%, trading below 7000 for the first time in almost 13 years, but the Dollar still rose, pushing the Euro down to below 1.2550, and the Pound below 1.40, although both currencies have bounced back just over a cent on this morning's trading.

Sterling suffered particularly badly yesterday as along with the general bad news globally, Hong Kong and Shanghai Banking Corporation (HSBC, a British bank in spite of it's name) announced it was raising GBP12.85bn capital by releasing a rights issue, sending it's share price tumbling by 20%. This dragged the FTSE down by 5.3% and GBP/EUR down below 1.1150. Thursday's rate decisions in the both the Eurozone and the UK are eagerly anticipated, and will hopefully provide some clear direction as to what is the appetite for rate cutting in the ECB, and how far are the MPC willing to go down the quantitative easing route.

The RBA have provided this week's first rate decision, and with the Australian economy weathering the economic storms much better than other major economies, the RBA have kept rates on hold at 3.25%. The Australian rate is much higher than other developed economies, but then this was the case even in boom times; as the RBA itself pointed out that the Australian financial system is much more robust than elsewhere, meaning that recent cut's have been passed on to borrowers, and inflation is expected to decline over time. The Australian Dollar followed the general market trend of falling against the Dollar on safe haven flows, before recovering on the back of the RBA decision back up above 0.6450 against the Dollar, and below 2.19 against the Pound.

There is little UK news out today, although there are reports that the MPC have already received the go ahead to start quantitative easing, something we will have to wait for Thursday to find out for certain. In the US we have pending home sales and a consumer confidence survey, neither of which is likely to give the markets much support, so the European currencies could stay on the back foot until we get some clarity from the central banks on Thursday.

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