Wise Money- news on finances, personal and business loans

Political concerns weigh Sterling down

2010-02-08T10:06:00.000Z

The Pound has lost ground today as political concerns and the prospect of the Bank of England’s policy meeting later in the week weighed down Sterling.

Two UK opinion polls over the weekend showed a general election, which has to held by June, would result in a hung parliament.

This weighed on sterling since many believe that such a result would lessen the likelihood of the UK getting to grips with its rising budget deficit.

Meanwhile, traders were wary ahead of the result of the Bank of England’s monetary policy committee meeting on Thursday.

By midday in New York, the pound fell 0.9 per cent to £0.8740 against the euro, lost 0.1 per cent to Y144.21 against the yen and fell 0.6 per cent to $1.5902 against the dollar.

Meanwhile, the dollar hit a six-month high on a trade-weighted basis, consolidating sharp gains after US growth figures came in stronger than expected last week.

The figures helped give the dollar an additional boost given that the US currency was already benefiting from increased risk aversion.

Safe haven demand for the dollar was boosted as fears over Greece’s fiscal position and concerns over continued Chinese monetary tightening weighed on risk appetite and global equity markets.

The dollar index, which tracks its progress against a basket of six leading currencies, rose to a high of 79.534, it highest level since July 30. The dollar also rose to a six-month peak of $1.3850 against the euro before paring some its gains to stand down 0.3 per cent at $1.3905 and climbed 0.5 per cent to Y90.77 against the yen.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Fear grips the markets

2010-02-05T15:36:00.000Z

Volatility in the money markets over the last 24 hours has been staggering!

The main economic events yesterday were related to the UK and European central bank decisions- however this was not the driver for the volatility.

The exact location of the fear was GPS…Greece, Portugal and Spain.

There was a scramble for safer shores in the USD and the YEN and out of the euro and higher yielders and to some extent the pound as panic swept the markets.

Escalating debt concerns are increasing in these European economies and this drove stocks and commodities lower- debts spreads between the good eggs and bad eggs widened considerably and could increase further.

The market clearly needs some reassurance in regards to the bad economic apples of Europe and ECB president Trichet did little to reassure the markets yesterday so we await a viable plan from each economy.

It seems the simmering problems perceived for some time within Europe are finally coming to the boil and the question is can each economy sort out their own mess?

You could also throw Ireland into the equation to formulate the PIGS of Europe- if they cannot reduce their debt- will the ECB and IMF offer a trough for aid?

Quantitative Easing QE- are we done?

2010-02-04T13:22:00.000Z

Today the markets are be focused upon the interest rate decisions from the Bank Of England and the European Central Banks.

First up is the BoE- the markets will be waiting to see what the MPC do with QE- the UK asset purchase scheme. Will they hold firm at the current level of £200 billion? Will they expand by a further £25 billion? Or will they signal the completion of the asset purchase- or at least pause?

There are valid arguments for all scenarios, however I feel that the most likely scenario is that the Bank will not extend now but leave the door open for future extension if deemed necessary. For sterling any signal on further extension would be negative and any closure or pause should be positive.

For the ECB the statement after the meeting will be all important and the situation in Greece, Spain and Portugal will be scrutinized. Trichet usually dances through tough questions without giving too much away so we are not likely to get any major surprises here.

Markets await central bank decisions tomorrow

2010-02-03T17:04:00.000Z

Quiet economic data today with the focus looking forward to tomorrow's interest rate decisions from the Bank Of England and the European Central Bank.

There is a possibility that the completion of the Quantitative Easing programme will be announced for the UK- however the ever cautious MPC will likely leave the door open for more if deemed necessary. Either way a pause or a cessation in QE should be largely beneficial for sterling in the short term.

The statements following the respective decisions from the BoE and ECB will again be the highlight as future policy sentiment will be predicted by the markets.

Sterling had a bright start today against the USD pushing back through 1.60 and hitting a high of 1.6069 before slumping back to earlier levels.

Reports of Asian Central banks buying GBP/USD earlier before the rally was sold back lower. EUR/USD also stuck its neck back above 1.40 again this morning to a high of 1.4026 before falling back to 1.40.

Currency markets future directions

2010-02-02T13:23:00.000Z

US Dollar and Sterling should continue to improve against the Euro and Yen for the short term at least.

With the presumption being that the improvement in performance for both economies can be traced back to their recently acquired, more competitive exchange rates.

Large moves in the next day or so, do look limited however, given the upcoming monetary meeting in Europe and the UK and given that much of the Euro’s recent weakness has been as a direct result of negative news from Greece.

It has to be assumed that most, if not all, the bad news has been priced in by markets now and the currency might be set for a bit of a lift as it benefits from an increase in risk appetite.

The Euro itself looks unlikely to surge however, given the likelihood of IMF intervention in Greece’s affairs and for those precious metal aficionados out there, it is worth noting that at present, Greece holds over 71% of its foreign reserves in gold, which at the end of December stood at just shy of $4 billion. Watch the gold price after the IMF have been in …..

Overnight the Reserve Bank of Australia surprised all but a few by leaving their official interest rates at 3.75 % against the expectation of a 0.25% increase, citing the lack of credible information so far on the effects of the previous increases, thus judging it appropriate to hold rates steady for the time being.

The Aus$ dropped sharply on the release but stabilised on a later caveat from the RBA that if the economy continued to improve, as has been witnessed over the recent period, rates would need to be raised further. The currency held at around 88 cents versus the US$ but given the anticipated continued demand from China for global commodities.

Wise Money forsees a volatile week ahead

2010-02-01T10:50:00.000Z

It’s a big week for the currency markets with a number of events that will most certainly add to the already volatile conditions which we saw in January.

The Euro has continued to slide against the Dollar over the weekend as concerns that Greece's budget problems may spread continue to weigh on the single currency.

Recent data from the Commodity Futures Trading Commission has shown that bets on a further decline now stand at the highest level in over a year. A strong Q4 US GDP figure (and subsequent stock market gains) on Friday further supported the dollar positive sentiment and helped the greenback reach a four-month high against the Swiss franc and a three-week high against sterling as signs the world's largest economy is gaining momentum spurred investors to buy U.S. assets.

Reports due later today are also expected to show that show U.S. manufacturing expanded for a sixth month and household purchases rose.

In the UK, attention this week will focus squarely on the Bank of England's policy decision on Thursday and what this will mean for the future of the asset-purchase facility.

With the property market showing signs of strengthening and the economy exiting recession, the MPC may move towards pausing it's emergency bond purchases after buying 200 billion pounds so far.

UK data earlier this morning showed that house prices rose for a sixth month in January as a shortage of homes for sale supported property values. However, prices were still down 0.8% from a year earlier.

Greece denies a bail out is required

2010-01-29T11:20:00.000Z

Greece's Prime Minister George Papandreou has denied speculation that it will have to be bailed out by the European Union.

Reports have suggested that the EU will pump money to help Greece whose public finances are in ruins.
At the World Economic Forum in Davos, he also said countries like his "are being used as the weak link, if you like, of the eurozone."
European leaders also denied that Greece would be kicked out of the euro.
"Nobody's going to be leaving the euro," Spain's Prime Minister Jose Luis Rodriguez Zapatero said.
"On the contrary, countries will be joining the euro in the future. The same is true for the EU. That is the best proof on how the EU has helped to guarantee stability."
A report in Le Monde suggested that the EU was considering bailing out Greece because the Hellenic nation's woes had shaken the euro.
'Speculation'
European Central Bank President Jean-Claude Trichet said the pact had helped keep the 16 members of the eurozone from experiencing even more strain.
Mr Papandreou said that there had been a lot of "speculation" during the financial crisis and that people were against the euro had targeted countries like his in the bloc.
Greece's public debt stands at about 300bn euros ($419bn, £259bn).
He also denied a Financial Times report that said Greece had been asking China to buy up to 25bn euros of its debt to help secure its finances.
But Mr Papandreou refused to blame the EU for the country's troubles.
"We Greeks see it as our problem to put our house in order," he said. "Greece blames itself, not the EU."
Mr Papandreou also floated the idea of having EU government bonds for all the members in the bloc.
The crisis is seen as the first test since the euro was created in 1999.
Greece, Spain, Portugal, Ireland and especially Italy together account for 40% of the eurozone's debt.
Their debt has ballooned as their countries have been battered by the financial crisis, while larger economies have had to spend huge amounts to bail out their key industries.
Since the financial crisis last year, many countries - including the UK, France and Germany - have risen above the EU's limits on public spending as a proportion of growth.
The EU's Stability and Growth Pact states that no nation in the bloc should have an annual budget deficit higher than 3% of its gross domestic product.
Greece aims to shrink public debt to 9.1% of overall economic output this year, down from 12.7% last year.

Greeks bonds tragedy in the making

2010-01-28T14:57:00.000Z

The “Greek tragedy” continues with rumours swirling that the Greeks have approached China looking to offload €25 billion of their debt.

The European dream is starting to crumble when on the back of the warning from the ECB that the Greeks will have to sort out their own finances they look instead to the East for a solution.

The euro has again tumbled on the back of this and €1.40 is now the line in the sand. The spread of the 10-year Greek bond yield over benchmark German Bunds also hit a high not seen since Greece adopted the euro in 2001

The US Dollar moved higher yesterday evening after the Fed's monetary policy meeting ended.

As expected, the central bank left interest rates on hold at the historically low range of 0 – 0.25%, and has been worded in previous statements indicated that it will continue to do so for an “extended period".

However, it was noted that one member of the committee, Thomas Hoening, voted to eliminate the extended period phrase. It also confirmed the continued plan to unwind its support to financial and credit markets.

Also of note was its presentation of a brighter economic outlook for the economy than highlighted in its previous statement in December.

UK the centre of attention

2010-01-27T08:41:00.000Z

The British Pound came under some selling pressure yesterday as the advanced Q4 GDP reading disappointed with a weaker than expected reading.

Economic activity in the UK expanded only 0.1% in the fourth quarter of 2009 versus projections of a 0.4% rise, with the annualised rate slipped 3.2% from the previous year versus forecasts for a 3.0% contraction.

The tepid pace of recovery in the UK, could threaten further downward action in the pound if once again the ratings agencies look to cut the UK`s debt rating.

UK crawls out of recession

2010-01-26T16:39:00.000Z

UK Quarter 4 GDP growth for 2009 came in at + 0.1 %

Although well below the forecast of + 0.4 %, it signals that the UK has finally emerged from the recession- for now.

The UK economy contracted 4.8 % in 2009 the biggest fall on record so a year to forget for the UK economy and the Pound.

The data was much weaker than expected and the Pound fell from a high of 1.6268 against the USD down to 1.61 following the data.

A spokesman for the Prime Minister ditherer brown affirmed that we are right to be confident but cautious about the economy- I would say more cautious than confident.

The concern now is that the UK could slip into a double dip recession if the tepid growth experienced cools as we move through 2010.

GDP economic data for UK and US awaited

2010-01-25T20:15:00.000Z

The lull before the storm? There is little economic data today, therefore the markets will be left to their own devices for the next couple of trading sessions.

Having said that, the Far East continued Friday’s trend in equities to finish lower on the session. Wall Street traders were spooked somewhat by the seemingly ever-more frantic measures that Obama is promoting to try and revive his flagging popularity and news that Bernanke’s re-election for a further term was in doubt just left any bulls side-lined.

The re-appointment of the dovish Ben Bernanke is seen as vital for the continuation of growth in the US economy going forward…..

At this stage in the week’s trading timetable then, we are very much looking forward to data and events later in the week. The headline catcher will be the release of updated GDP numbers from both the UK and the US with positive revisions expected for both.

Although Alistair Darling has been down-playing expectations for the UK figure, the weekend press and market pundits have all (or mostly all) pencilled in a positive figure for the 4th Quarter (+0.3% giving a less negative annualised number of about -3.0%).

This will no doubt be heralded as the first indication that the trough of UK economic performance has been passed and be greeted with great enthusiasm. The road to full recovery however will remain littered with potholes so expect any Sterling strength on the back of the news to be short-lived.

Euro plunges to 1.40 against US Dollar

2010-01-22T11:18:00.000Z

It is fair to say that the euro has been well and truly hammered over the last few trading days and is on the ropes.

The 1.40 level on EUR/USD is today in sight which is a 7% fall from the December highs.

The demise of the euro was triggered with the economic Greek tragedy and has since been hit with a return to risk aversion which is triggering buying of USD and JPY.

Concerns are increasing on the maintainability of the ever expanding growth in China and fears that China will act further to slow the rampant growth by raising rates.

This has taken a lot of risk off the table in the Far East and Australasia and we have seen weakening of the commodity currencies to tie in with this- in particular the Aussie dollar.

GBP/EUR is hovering around the 1.15 level- a further fall in EUR/USD would lead it cleanly through the 1.15 level. The euro will not be helped by slightly weaker than expected Eurozone PMI this morning.

Sterling strengthens to 1.15 against the euro

2010-01-21T11:52:00.000Z

Sterling is continuing its rally against the weak euro but has fallen back against other major currencies.

GBP/EUR is pushing up and has already hit the key 1.15 level in trading today as the euro is pummeled against the major currencies. The move higher for sterling is more related to euro weakness this morning as risk aversion is back in play on further concerns surrounding Greece.

The failing on the sterling Bull Run against the USD was fuelled by renewed concerns raised by Fitch the credit rating agency on the UK’s fiscal deficit coupled with a blunt warning from Mervyn King on the health of the UK economy.

Alistair Darling again repeated the need to cut the deficit but the rating agencies are focusing on changes introduced and not to be introduced- the general feeling is that the pre-budget has not gone far enough.

Focusing on UK data we have seen jobless claims come in better than expected and the official unemployment rate has fallen to 7.8% from 7.9%- very good news.

No surprises from the BoE in their minutes as the MPC voted to keep rates and QE on hold with a 9-0 decision. They also indicated that yesterdays surge in CPI is most likely a blip and CPI levels should wind lower in 2010 and the February inflation report will offer more clues on the real status of inflation.

Sterling continues to stride ahead in 2010

2010-01-20T10:16:00.000Z

Another bright start for Sterling which continues it's gains.

Sterling hit a 6 month high against the euro and pushed higher against the USD. The move was initiated with the acceptance and recommendation from the board of Cadbury’s on the offer by Kraft.

The Kraft offer values each Cadbury’s share at 840p and shareholders will be entitled to receive 10p per share in the form of a special dividend. Sterling gained on the back of the expected benefits from the M&A flows of the deal.

Then at 9:30 official UK inflation data came in much better than expected- UK December CPI has come in at +0.6% month on month, +2.9% year on year, demonstrably stronger than median forecasts of +0.3%, +2.6% respectively.

This has raised the prospects for a Bank of England interest rate rise in 2010 and it certainly offers the Bank of England something to think about in early Feb.

This data also heightens the view on the UK employment data later this week- better data here could reinforce the view that the UK is firmly on the road to recovery.

The Pound hit a high of 1.1455 against the euro and 1.6457 against the USD before falling back from the highs- Mervyn King is due to speak later and the market will expect a cautious approach which could take the edge off sterling- we will see later..

The Euro is under pressure this morning as the fallout in Greece continues to undermine the single currency and in addition the German ZEW came in weaker than expected for the third month in a row. The euro is closing in on key technical levels against the USD and the EUR with EUR/USD close to breaking below 1.4275 and GBP/EUR targeting 1.15.

Big week for Sterling ahead

2010-01-19T11:32:00.000Z

A very good work for Sterling last week as it pushed higher against the major currencies.

The push on sterling was largely attributed to improved economic data leaning to a more positive outlook for the UK economy. In addition the National Institute of Economic and Social Research (NIESR) estimated that UK fourth quarter GDP which is due out next week will come in at +0.3%- so therefore the UK will be out of recession!

The upbeat assessment was mirrored by MPC member Andrew Sentence who commented that the Bank of England may need to raise interest rates this year. So will this good run continue this week?

Hopefully so. We have a plethora of economic data and feedback this week from the UK economy which could galvanize sterling further.

We start on Tuesday with the Consumer and Retail price index which is a gauge on inflation for the UK- the expectation is that the measures will show an increase in inflationary pressure which will add further to the probability of a rate rise in 2010.

Following this we have the Bank of England minutes which may offer an insight into the cessation of the Quantitative Easing programme- possibly as early as February. Following this we have retail sales and jobless data followed by public finance data.

So a big week for the Pound and if we get more positives than negatives we could see a stronger Pound ahead of the official release of Q4 2009 GDP next week. Watch out for the public sector net borrowing data and M4 money supply which could trip up the pound if worse than expected.

China and Eurozone centres of markets attention

2010-01-18T11:01:00.000Z

China are scheduled to release their 4th Quarter GDP figure with market consensus looking for reported growth of 10.5%.

The odds however are for an even stronger outcome and markets could react very positively towards the regions currencies and commodity currencies against those of the industrialised West.

In The Land of the Rising Sun, this week should see further developments in the winding up of Japan Airlines. Reliable rumour has it that the company’s commercial activities, including their oil and fuel contract will be 100% guaranteed but that their forex hedges will be required to be unwound. This could mean the company needing to sell US Dollars against the Yen.

As expected last week, there was no change to the ECB’s policy interest rate and Trichet’s post-announcement was largely uneventful.

Although he managed to achieve a balanced tone to his testimony, it was apparent that he was not overly concerned on imminent inflationary pressures within the zone.

He acknowledged that current fiscal problems are placing a considerable burden on monetary policy but that individual States’ current difficulties would not cause the ECB to require a change in the collateral framework of any country.

Euro rumours the centre of attention

2010-01-15T16:03:00.000Z

Following yesterday’s potential minefield that was the ECB meeting, the market mover today was a rumour that went round the Far East in the early hours that the German Chancellor, Merkel, was ready to resign her position.

This appears to stem from a report in Time magazine that was negative on the support that Frau Merkel is currently receiving. This rumour was swiftly denied by a German Government spokesperson but the damage was done and the Euro dropped sharply all round.

In fact the move was then compounded as traders re-visited the comments from Trichet in his post-ECB policy meeting press conference.

Although he had said, when grilled by the reporters about Greece’s debt problems and the possibility of the country dropping out of the Euro, that he did not comment on ridiculous hypotheses, the whole question of Eurozone sovereign risk and the support that namely Greece, Portugal and Spain currently enjoy, was brought back to the table.

Sterling enjoyed a good spell and with the 200-day moving average at around 0.8850 being breached, traders saw a raft of stops taken out and a quick dip down to the 0.8825 Euro technical support.

A weekly close beneath 0.8825-30 suggests a move lower towards 0.8500 but I feel that this is a move too far. The whole Greek/Portuguese situation has been overdone and it would not surprise to see traders looking at current rates as an opportune level at which to re-establish Euro long positions.

Aussie Dollar shines whilst US Dollar weakens further

2010-01-14T12:38:00.000Z

More weakness for the US Dollar yesterday across the markets except against the Yen.

This push on US Dollar weakness relented in later trading after the Fed beige book posted a slightly bullish report for the US economy. Today is a big day for the USD with the eagerly awaited retail sales data and corporate earnings reported by Intel…the USD will need good news from both to stage a recovery and prevent further selling pressure.

The big winner in the markets was again the Aussie. The catalyst was better than expected jobs data; the unemployment rate dropped to 5.5% from 5.8% from the month earlier as the number of people in work rose by 35,200 in December.

Australia is the stand out performer of G20 nations and has rallied on stronger commodities and increased demand from China. It will be interesting to see if the RBA raise interest rates at their next meeting; if so we could see AUD/USD hit parity and GBP/USD mover into the 1.60’s.

Sterling has benefited on feedback from the National Institute of Economic and Social Research (NIESR) which yesterday estimated Q4 GDP at +0.3% and thus out of recession.

However it was still the worst year for the UK economy since 1921. A good week so far for sterling which was initially buoyed by hawkish comments from MPC member Andrew Sentance. Surely we are due for some bad news now…or is it the start of a sustained rally?

Financial markets lack direction

2010-01-13T12:26:00.000Z

Yesterday we saw a bout of US Dollar selling pushing EUR/USD back to 1.45 and supporting the Pound in a run up towards 1.62.

This ran out of steam in later trading as the markets became range bound with this pattern continuing so far today. Data from the UK today showed a reduction in the trade deficit and overnight we saw BRC retail sales come in at +4.2% year on year; both data better than forecasts.

However it was not all good news for the UK as RICS December house price balance came in at +30 from +35 in November- the expectation was for +36 and this was the first drop since Feb last year.

Overall we have seen more positives coming from the UK data snaps and this should bode well for the Q4 2009 GDP data.

US dollar weakens on news

2010-01-12T10:22:00.000Z

A combination of factors has caused a weaker US Dollar this morning.

Firstly the market is still reacting to the disappointing US non-farm payroll data on Friday; the expectation was for a positive number at +10,000, however the actual came in at -85,000 for the month of December.

This data after volatile markets led to a weaker US Dollar. This morning the Pound and the euro have gained further against the greenback with sterling heading towards 1.62 and the euro pushing back over 1.45.

The weekend release of December Chinese trade data which came in above expectations is helping lift risk sentiment in the markets. Chinese exports rose 17.7% in December helping to reinforce confidence in the global recovery and lifting FX risk flows.

Sterling strenghtens on positive news

2010-01-11T10:50:00.000Z

Sterling finished last week as it started in a positive tone.

The Pound has pushed through 1.60 against the USD and towards 1.12 against the Euro. The gains are largely due to the feeling that the Bank of England will end the Quantitative Easing programme in next months MPC meeting.

The general sentiment is that UK GDP will come in positively at the end of this month and this will lean the Bank Of England to pull the plug on the life support for the UK economy.

On top of this sterling has gained on the back of the latest opinion poll from the Sun which emphasizes an extended lead for the Conservatives after the failed coup to oust Brown.

This is significant as it decreases the possibility of a hung parliament which would be sterling negative due to the lack of a majority to clearly define fiscal objectives. Expect more sentiment shifts before the Feb MPC meeting which will be significant; yesterday as expected there were no surprises in the MPC meeting for the UK with the interest rate and QE held.

The Yen remains in the spotlight as the market adjusts to the new finance minister Naoto Kan. Mr Kan is the polar opposite to the previous finance minister Hirohisa Fujii and favours a weaker yen.

Which is the weaker- Yen or Sterling?

2010-01-08T10:56:00.000Z

Both Sterling and the Yen are being seriously undermined by both political and economic concerns and are racing each other towards the edge of the precipice.

On the Japanese political front, the replacement of Fujii by Kan as Finance Minister was not greeted enthusiastically and as mentioned yesterday the Yen took a little dip in value.

The major concern, was that the Japanese bond market might take flight and the ability of the Ministry of Finance to satisfy the country’s massive debt mountain could become compromised.

Added to this, the first official comments from Kan were distinctly Yen negative with him saying he wants the Yen to weaken further (it fell immediately from 91.10 to 91.75) and then adding that many Japanese firms favour the $/Yen rate at 95.00 and that he must work with the Bank of Japan to bring the Yen to appropriate levels.

Beat that lot, sterling …. Well it did try its best.

On the UK political front, the call from the 2 cabinet members for a secret ballot of Labour MPs to establish Gordon Brown’s position as leader of the party was viewed very negatively by the market on the assumption that a leadership battle this close to the election would be the final nail in the coffin for the Labour party but also, might be enough distraction for them to take their eye off the economy.

Following on from this, there is a report in the Times this morning headed up, "Cash-strapped Treasury contemplates shining up gilts" which ponders the possibility that the Government might be forced to offer higher returns on its gilts in an attempt to maintain their investment appeal.

This will obviously have the effect of further increasing the cost of servicing the country’s borrowings from the current forecast of £60 billion per year - and that is just the interest component.

Old Black Eyebrows is seeking to sell a record £225 billion tranche of debt this year at the same time as the Bank of England look to offload the bonds that it acquired via the Asset Purchase Scheme as part of the QE process and against the back-drop of investor concern over the UK’s status as a AAA rated sovereign.

Higher yielding currencies early 2010 gains

2010-01-07T12:14:00.000Z

Positive interest in many Far Eastern and Antipodean currencies continues as investors look to the Asian and Pacific regions for the most likely currency appreciation during 2010.

Apparently confirming the view, a researcher at the China Academy of Social Sciences (a Chinese Think Tank) told reporters that the Renminbi should be revalued by a one-off 10%. This, though, was mis-translated apparently with the Chinese version reading, they ‘think that it is good to push for a 10% rise but that NOW is NOT the right timing’.

Despite this, the mood is set for gains in the region with just the Yen bucking the trend, having started to lose its recent upward momentum. As mentioned previously, the gradual widening of the interest rate differential between the Yen and the other major currencies, favour its return back to the funding currency of choice.

The resignation of the Japanese Finance Minister, Fujii on health grounds (he had been viewed as a steady hand on the tiller on the back of his considerable experience in markets) leaves a big gap in the government’s ranks ahead of an important financial period and a crucial debate on fiscal policy.

His withdrawal from the fray also makes intervention much less likely, negating the possibility of official support for the Yen if the market does start to push it back towards 100 versus the Dollar.

The trade of the year call however is to be short Sterling / Aussie now that the strong support at 1.7700 has broken. Talk is for a move down to 1.6000 which, unless you view Cable as being a non-mover, suggests a move in Dollar/AUD down towards, but not through, the parity level.

This backs up the argument that commodity currencies will dominate proceedings during the early stages of the year with the Aussie, Kiwi and Canadian Dollars the punters favourites.

Sterling kicks off 2010 in bright form

2010-01-04T16:08:00.000Z

As usual, the trading periods between the Christmas and New Year holidays threw up some sharp moves, especially in the Dollar/Sterling cross, with one 24-hour session seeing cable trade up from 1.5850 to 1.6225 before settling back down below 1.6100.

The few Banks still operating certainly enjoyed themselves. Today we start with Sterling looking relatively firm and the Yen soft. Euro/Dollar, which didn’t experience the more extreme moves seen in cable, remains in the mid 1.43s.

The Yen has been the weakest currency over the last month since the newly elected government embarrassingly forced the Bank of Japan to change its established tack and boost QE whilst expanding fiscal spending. This has renewed appetite for using the Yen as a funding currency and with expectations that interest rate differentials are set to widen against the Japanese currency, this trading trait looks set to grow, to the Yen’s detriment.

An article in the Wall St Journal today gives reasons for caution as we enter 2010, singling out the UK as having the worst fiscal position of all the industrialised nations, noting that, unlike several other headline grabbing countries, the UK does not have either an implicit or explicit guarantee from a friendly nation that stands behind its debt should things take a turn for the worse.

Given that PIMCO (Pacific Investment Management Co), which runs the largest largest bond fund, have announced that it is cutting its holdings of both UK and US government issues owing to the spiralling debt burden in both countries, it suggests that Sovereign standing is going to be the focus going forward.

US Greenback ends the year on a high

2009-12-30T10:47:00.000Z

As we enter the last full trading day of the year, the Greenback has strengthened and trades below 1.59.

Yesterday's US consumer confidence showed a figure of 52.90 against an expected 53.0, but still up on November's figure of 50.6. On the back of this data the dollar moved over 1.60 but shifted back towards 1.59 levels soon after as thin market trading continued.

German consumer price index figures released yesterday afternoon added support to the euro as we saw an increase to 0.8% from an expected 0.7%, up on last years 0.3% and euro/GB Pound fell below 1.11 where it is trading this morning.