Currency Update – Wednesday

Currency Update – Wednesday

The Pound continues it's downward slide, as the OECD weigh in with revisions to their expectations for growth in the major economies. Unsurprisingly the OECD have confirmed the general market view, of a resurgent US, growth revised up to 1.8%, Japan and the Eurozone suffering, revised down to 1.2% and 1.3% respectively, and Britain have been revised downwards also. The news for Britain is even worse with the OECD predicting a chance for a UK recession in the next two quarters, and with growth stalling in the 2nd quarter it wouldn't take much more of a slowdown to drive growth into negative territory. The negative news has overshadowed a mildly positive Nationwide Consumer Confidence survey, which showed a steady reading, although at the lowest levels since the measure began. Sterling has fallen overnight now sitting below 1.23 against the Euro.

The falling price of oil, it fell below $105/bbl before recovering slightly yesterday, has kept the Dollar rising, in spite of a slightly weaker than expected ISM manufacturing survey, it hit a 11 month high yesterday. Against Sterling the Dollar has risen, forcing the rate down towards 1.77, and the Dollar has also risen against the Euro, forcing that rate down to 1.45. It now seems that the US Fed's tactic of rapidly reducing rates has started to pay dividends with the Us economy first out of the global slump; the downside to the rate cuts is how it may fuel inflation, and this will be seen in the coming months. Us inflation is high, but not appreciably higher than the Eurozone or the UK.

There is little prospect of good news for the Pound this week with today's PMI service survey also expected to come in weak. In the Eurozone we have retail sales, and Q2 GDP, both expected to show weakness, setting up the Eurozone to drop into negative growth for the last quarter of 2008. Over in the US the highlight is the Fed's beige book, a broad look at the US economy, which is expected to highlight the green buds of new growth, so it looks like Sterling may continue to track lower against the Dollar up to Friday's important payroll numbers.

Michael Corcoran | Treasury Solutions | nabCapital

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