National Australia Bank Daily Currency Update 23rd July 2009

National Australia Bank Daily Currency Update 23rd July 2009

Sterling staged the kind of recovery after the MPC minutes that Bradley Wiggins failed to do on the slopes of Col De Romme yesterday. Their had been some expectations that the minutes may have announced an extension to the QE program, which would have seen the Pound tumble, but the minutes actually painted a wait and see approach as they didn't announce that they would be winding up the program in August, which a minority believed may happen, nor did they announce any increase, instead they reiterated that the tools are there to pull the extra liquidity out of the system, but that this would only be done when the risks to inflation are to the upside of their 2% target rather than to the downside. The program that the MPC have started is outside or ordinary central bank policy and therefore the actual ramifications are uncertain, the MPC did say they believed that the program had softened the worst excesses of the credit crunch, while inflation was also a little higher than they had expected, pulling or extending the liquidity at the moment would be more risky than just letting the current situation carry on and studying the outcomes.

There is always the chance that the QE measures will be extended in August, but the fact that nothing was announced sent the Pound from around 1.15 early yesterday to just under 1.16 today. The Pound has also rallied against the Dollar clawing it's way back to above 1.65 after falling to a 1 week low down near 1.63. The rally against the Dollar was due to more than just the MPC minutes, as Bernanke's 2nd day of testimony to congress, this time to the Senate, even though he just reiterated the same points from the day before, still smoothed the fears of the US QE measures and gave a small boost to risk appetite. US stocks were still soft, but managed to stay supported as a couple of large corporates posted good news with Apple's Iphone giving them a big boost, while Goldman Sachs have actually started paying back money to the government, making a $1.1bn payment.

The AUD continues to remain supported, although it has failed to break through 0.82 against the Dollar, it has kept just under this level, while dragging Sterling closer and closer to towards 2 Aussie Dollars to the Pound. The AUD is being supported by rising commodity prices, and the overall market conditions seem supportive of further AUD gains, with the RBA noting that the global dip hadn't hit Australia as badly as some expected, while the underlying inflation in the Australian economy was still ticking along with no risk of deflation. There is even speculation that in next months central bank meeting they may switch from the relatively mildly accommodative stance they have now to a more neutral interest rate policy.

Today we've had UK retail sales, which has been volatile as of late, showing rises and fall in previous months. The measure for June shows a huge 2.9% year on year rise, put down to, it says on the news feed 'June heatwave', which must have passed me by, I can remember maybe 1 good week of weather, but sales are still up, although they have given Sterling only a little support, as it stays around 1.16 and 1.65 against the Euro and the dollar respectively.
This afternoon we have existing home sales figures for the US, these are expected to show a rise of 1.5%, although this rise is likely to be due to forced sales, and price falls, a rise would brining levels back to the pre Lehman brothers collapse, and could reassure the markets, boosting risk appetite, and maybe Sterling.

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