YB FX Daily Report – 4th March 2009
A relatively quiet day on the data front for the UK, with just the PMI survey for construction released showing a unsurprisingly fall, so the Pound instead was driven by broader news, and as usual, the stock markets. The FTSE fell once again, this time by 3.1% to a new 6 year low, and Darling announced that everything was in place for the BoE to begin quantitative easing, increasing the expectations that this Thursday’s MPC decision will also contain details of what measures they intend to take. US stocks didn’t fall as much as the UK, no doubt buoyed by Gordon Brown’s visit, and President Obama even took some time from meeting our Prime minister, and the boy scouts of America, to endorse buying stocks which he described as a potentially good deal as long as you have ‘a long term perspective’. The S&P500 was supported by bargain hunters, but still fell slightly at the close of the day, and the Dollar has kept the Pound low, briefly dipping below 1.40, but this morning staying steady just under 1.41.
Sterling has risen slightly overnight against the Euro, shifting back up above 1.12 this morning as the Eurozone PMI survey for services fell to a record low, and indicated an increased pace of job losses. The survey for each nation in the Eurozone has followed the overall figures showing extreme weakness everywhere, it now looks like a further rate cut on Thursday is certain, and the ECB may need to indicate it is willing to cut further or to start quantitative easing measures to help calm worried markets.
After the RBA kept Australian rates on hold on Tuesday, the Canadian central bank have cut rates by 0.5% to 0.5%, the lowest rates Canada has ever had. The statement announcing the cut was extremely dovish, and although the Bank of Canada hasn’t started quantitative easing measures just yet, the statement did suggest it as the next step, and with rate already near 0%, then there is little else the bank can do. The Canadian Dollar slipped further on the back of the statement rising to 1.2921 against the Dollar, when it had hit parity at the height (nadir?) of the US Dollar’s weakness, while the Pound has risen to near 1.82 against the Canadian Dollar.
The data releases for the UK this morning have been mildly positive, or at least not as terrible as expected. A consumer confidence survey showed a slight improvement from last month, while still staying at pessimistic levels; the service sector PMI is also at poor levels, but at least the pace of the decline is slowing, so things are still getting worse just not as fast as before. This afternoon brings the ADP employment report, once again it will be viewed as a precursor for Friday’s non-farm payroll report, which is itself expected to follow the recent trend of over 500k job losses.
The Pound is likely to stay roughly supported at current levels until tomorrow’s rate decisions and the details on quantitative easing measures.
Michael Corcoran – Treasury Partner | Treasury Solutions | nabCapital.