YB Currency Update – Thursday 25th February

YB Currency Update – Thursday 25th February

The Labour party seem intent on making the next election a foregone conclusion with, first the bullying accusations, then some extremely ill chosen comments from Alastair Darling over the reaction to his statement that the recession could be the worst since the war, indicating yet more splits at the highest levels of government, reminiscent of most of the time that Gordon was Chancellor and Blair was Prime minister. Of course politics can be a messy business, as the national bullying helpline found out when it revealed complaints about the atmosphere in no10, by putting their head above the parapet they came under a lot of pressure, losing patrons, and have now been suspended. There was also some clarification yesterday over what a hung parliament would mean with a civil servant giving testimony to a select committee over whether they would be capable of functioning, and as there has only been one change of government in the past 30 years their flexibility has to be in doubt.

The uncertainty over the looming election, especially as the conservatives seem incapable of pulling away in the polls even as Labour implode, is likely to continue to weigh on the Pound in the coming months. This may explain why the Pound is having such trouble against the under pressure Euro, keeping in a range around 1.1350 - 1.14 overnight, even as a couple of rating agencies warned that they may still further lower Greece's credit rating. There are rumours that Greece may be looking to issue another batch of treasury bonds sometime soon, and the auction will be closely watched to see if there is still a demand of Greek debt.

The Pound has performed much worse against the Dollar, even as Bernanke's testimony yesterday sought  to calm the market's fears over the Fed's intentions for interest rates. Bernanke repeated the usual line that interest rates would be 'exceptionally low' for and 'extended period' and that the recent rise in the discount rate was just a technical decision and not the start of a tightening cycle. Other Fed members have been saying almost exactly the same thing ever since the discount rate was raised so the market's reaction to the testimony was muted. Overnight the Pound continued to extend it's losses against the Dollar slipping to just above 1.53, a fall of  11c in just over a month.

It's a low key day for UK data, with just business investment and a CBI distributive trade survey. Business investment will give some clues as to whether tomorrows revision to GDP will be positive, it's already expected to be so with past revisions to retail sales, while the distributive survey for February will give some hint as to whether the dip in retail sales in January was a one off due to VAT increases and the weather, or was a gloomy portent of things to come. Over in the Eurozone we have the usual month end survey's which aren't expected to provide any surprises, while the US brings another day of Bernanke testimony and some durable goods orders. With the data mostly low key today, the currency markets are likely to stay rangebound, but for now the Pound seems to be on the backfoot.

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