Currency Update – Wednesday 17th March

Currency Update – Wednesday 17th March

Yesterday was a good day for risk appetite, and it was topped off by a dovish statement from the Fed in their rate announcement. Europe was at the heart of the good news during the day, with the German ZEW index coming in stronger than expected, or maybe it's better to say not as weak as expected as it still wasn't all that strong. There was also good news over the long running debt problem with Greece, as European finance ministers have said they have worked out a procedure for emergency loans should the need arise, and Standard of Poor (S&P) have even removed their negative watch stance against Greece, confirming their BBB+ rating status, which although still poor is at least not going to get any worse in the near future. S&P also commented that they were happy with Greece's plans to cut their deficit which they described as sufficient to achieve the aim of bringing the deficit down to 8.7%, which it should be noted is still way above the 3% European target.

With the fears over the prospect of a Greek collapse fading you would expect the single currency to strengthen, and it has against the Dollar, pushing up 1.38, however the Pound has managed to rise against the Euro, pushing up to around 1.1050. The Pounds rise has come on the back of yet more political polls, these polls show a widening gap between the Conservatives and the Labour party making the prospects of a hung parliament more remote. There was also the DCLG house price survey which showed house prices rising at twice the expected pace, directly contradicting a survey released earlier in the week. The Pound's rise is fragile, and could be reversed with one bad poll for the Conservatives, but for now at least it seems to be supported.

The Pound made the biggest jump against the Dollar as the US currency was deflated by the rise in risk appetite, and wasn't helped by the Fed statement yesterday evening. The Fed kept the wording which stated that rates would be 'exceptionally low levels....for an extended period'. The Fed also stated that they were nearing the end of their asset purchase program, although they left the door open to extend it if need be, and they also upgraded some of their forecasts for the US economy. The dual forecasts of low rates for the foreseeable future, and improved activity have allowed the Pound to push back up to above 1.5250, although one against the rise is likely to be fragile.

For the UK today we have the BoE minutes as well as unemployment data. The minutes are expected to be unexceptional stating a unanimous decision to keep everything on hold, although once again they are likely to talk about the decision being a close run thing. The unemployment figures may be more interesting and they are expected to show a return to an upwards trend, with some even talking about a job negative recovery with firms shedding jobs even as the economy picks up. Unemployment is still lower at the moment than it was forecast to be at the start of the recession, but a sign of increasing job losses does not bode well. The Pound may take a hit from the data, but it is likely to keep above the average from the last few days.

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