Sterling sinks below 1.50 again

The consolidation period for Sterling did not last too long and overnight in Asian trading and so far this morning it has been under selling pressure again. 

The reason for the fall today has again been attributed to narrowing polls showing that Labour and conservatives are "neck and neck". 

In addition credit rating agency Fitch has stated that the UK sovereign credit profile has deteriorated and Moody’s has warned that some UK banks could face downgrades. 

To top it off we have received poor economic data with UK RICS house price balance coming in weaker than expected and the UK January trade balance was also weaker than anticipated.

Elsewhere the euro has come under some pressure too against the USD and the JPY. 

Although the Greece situation is becoming yesterday's news, there are a number of other economies to replace Greece such as Portugal and Italy for starters. Expect the euro to remain under pressure for the foreseeable future.

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.

Euro interest rates held at 1pc by ECB

As expected the ECB kept homes loans rates on hold at 1%. 

They announced that it will continue to scale back their special lending measures as expected and equally as expected Trichet dodged the difficult bullets concerning Greece and gave little away. 

Yesterday's Greek bond issue was a real success and this gave the markets a boost backing up the recent austerity measures introduced- the market is aware that we are not out of the woods but this certainly helps. 

Expect further wranglings with Greece but nice to get some good news for a change; today the German and Greek heads are meeting. 

Should be a spicy meeting after yesterdays comment from the German Economics Minister who said that the German government has no intention of offering Greece "even one cent" and that each country has to take care of its own affairs…..would be nice to be a fly on the wall for this meeting.

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.

Eu bullies Greece over finances and raises sovereignty question

The European Union has bullied Greece by stripping it's vote at a crucial meeting next month, the worst punishment ever suffered by an EU member state.

The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. 

It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty which would amount to economic sovereignty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".

The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. 

Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.

Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout - backed by Britain - were "absurd" and would shatter the credibility of monetary union.

Many Germans disagree, including Otmar Issing, once the backbone of the European Central Bank. He said an EU rescue for Greece would be fatal, arguing that unflinching rigour is the only way to hold monetary union together without political union.

Tuesday's EU verdict amounted to a thumbs down on Greece's earlier austerity efforts, viewed as too reliant on one-off measures and too light on spending cuts. 

Greece must reduce its deficit from 12.7pc of GDP to 3pc in three years. Greek customs officials expressed their anger by kicking off a three-day strike, the first of many stoppages set to culminate in a general strike next week.

However, premier George Papandreou has won support from key political parties and a majority of the people.

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.

Greece- is there a deal or not?

EU leaders are meeting today in an attempt to lay the foundations for a deal to rescue Greece. 

Lots of speculation already touted this morning. There has been talk of IMF assistance and then IMF involvement without funding. Germany and France are widely expected to shoulder most of the responsibility in supporting Greece. 

The most recent feedback is that aid for Greece will depend on Athens meeting its deficit reduction targets this year- begs the question- what if they do not? 

Lots of fence sitting which is still leaning to reduced confidence in the markets and associated strength of the safe haven currencies such as the USD and the YEN. Expect more volatility as more news and feedback filters through.

Sterling is suffering from a hangover today after a little too much of Mervyn King yesterday. 

The Bank of England governor killed off the rally in sterling by leaving the door open for a further expansion of the QE programme. However it was not all doom and gloom from King who dismissed fears that the UK would lose their AAA credit status. 

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.

Euro bashing rests for porfit taking

However the pause in its recent decline is more to do with profit taking than a reversal of the currency’s fortunes. 

Today's Financial Times suggests that £7 billion of short trades are weighing against the eurozone's immediate currency prospects.


We did see both Euro and Sterling hit 8 month lows overnight as the Asian markets rushed to buy the perceived safe haven US Dollar but once again, proximity to support levels was enough to bounce both rates as Europe entered the fray. 

The concern for Euro bulls is that recovery attempts seem very limited in scope and small in magnitude. 

The rally for the single currency in the US last night was snuffed out by the combination of a late sell off in equities and an expectation that Bernanke’s testimony this evening could very well signal a more hawkish Federal Reserve outlook, with speculation that he might lay groundwork for a tightening of monetary policy.

Yesterday’s markets, outside the late US fluctuations, were largely extremely boring with traders waiting for developments (either good or bad) on the Eurozone Sovereign issue. 

Nothing much happened. The Spanish Finance minister was in London talking to bond holders and the Portuguese and Greek governments were both vocal in their defence of their respective fiscal positions Data again is light today with UK trades and US wholesale inventories the highlights. 

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.

Greece denies a bail out is required

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.

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.

Greeks bonds tragedy in the making

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.

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.

Euro plunges to 1.40 against US Dollar

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.

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.

Sterling strengthens to 1.15 against the euro

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. 

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.

Sterling continues to stride ahead in 2010

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. 

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.

China and Eurozone centres of markets attention

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.

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.

Euro rumours the centre of attention

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.

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.

US Greenback ends the year on a high

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.   

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.

Thin market trading after Christmas reopening

The markets have today reopened after the Christmas break with little to report. 

The Euro/US Dollar is attempting to push back up over 1.44 and sustain this level, with cable struggling to hold above 1.60. USD/CAD has hit a 2 month low of  1.0373. 

 European data released this morning showed that French Gross domestic product remained at 0.3% (QoQ), as a result the euro did not budge.
 

Throughout the trading day so far the euro has remained pretty strong, helped by a slightly better than expected figure for Italian business confidence. The Pound has gained ever so slightly against the greenback. 

This afternoon we have US consumer confidence which is expected to show a figure of 53, against a previous figure of 49.50   

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.

The US Dollar rally continues

The US Dollar index- which measures the strength of the USD against a basket of currencies hit a 3 month high as the Dollar extended its recent rally. 

However the motivation for the rally shifted- previously the US Dollar gained on the back of recent positive economic data in the form of retail sales and payroll numbers. 

Yesterday it was more a case of good old fashioned risk aversion creating a demand for the safe haven US Dollar. A more upbeat statement from the FED may also have helped as they slowly turn more hawkish, however it was a clear case of risk off that drove the US dollar higher yesterday. 

The problem is that a weaker Dollar will have contributed to better economic data and now the USD is gaining we could see future economic feedback stuttering.

Looking at current levels EUR/USD has now fell back to 1.4380 and hit a low of 1.4304 a level not seen since September. The euro is still struggling on structural weaknesses within certain nations in the 16 nation zone. 

GB Pound/US Dollar also fell into 1.60 territory before creeping back to 1.62- a fall in BRC retail sales was not good news for the UK economy and this number on release caught the market off guard with sterling dropping sharply.

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.

Euro weakness continues

Since the beginning of December the euro has shed 500 points against the US Dollar.

Recent problems in Greece and Austria and further structural problems within the eurozone are zapping confidence. In a nutshell along with recent problems within Greece and Austria, you also have concern over Italy, Spain and Portugal and exposure in Eastern Europe.

Take this alongside a strong euro and expanding deficits and you have forward looking issues which are shaking investor confidence. To add to the woes of the euro, the USD has had a fine run in the last week being largely supported by stronger economic data.

Tonight we have the US interest rate meeting from the FOMC and based upon the recent turn of fortunes for the USD the market will be looking for a hawkish statement. The key levels should a more positive statement occur would be 90 on USD/JPY and 1.45 on EUR/USD for the USD to break through.

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.

Euro even weaker than Sterling

The euro has again moved lower against the majors and in particular against the US Dollar moving down to 1.4523 overnight and overall down 500 points from recent highs. 

The cause of the downturn has been attributed to the recent jitters in Greece and more recently in Austria. 

The Greek prime minister commented yesterday that Greece does not have much time and must take tough decisions within the next three months- decisions that have been left for decades.  

In a very direct address he stated that “we must change or sink” and vowed that he will tax the bonuses of Greek bankers by 90%- move over Alistair Darling!

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.

US Dollar slips again

The move back into the US Dollar did not last too long as was mainly attributed to the fear factor surrounding Dubai. 

As the markets started to feel more comfortable the US Dollar fell pretty much across the board. EUR/USD again pushed through 1.5050 and then through the 1.51 level, GBP/USD also gained back to the 1.66 level. 

Apparently unnamed sources from the ECB are saying that ECB officials are not concerned about the recent euro strength against the USD- not sure I believe that. This week we have the ECB and the improvement in economic data recently has caused speculation that the ECB will turn more Hawkish in their approach to monetary policy. 

The problem with this is that it would lead to further euro strength if the ECB move before the US Fed and this will certainly be an issue on the agenda for the ECB going into today’s interest rate meeting.

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.

More eu red tape throttles insurers

There is nothing like a bit of scaremongering to put the skids under nervous investors and yesterday it was the turn of the eu to stir things up.

The catalyst for another bad day in the London share market was a letter from the Association of British Insurers, the industry body, to Alistair Darling in which it gave notice that its members may need to ask investors for £50 billion to cover new European capital requirements.

The prospect of a large recapitalisation is pinned on concerns about the proposed Solvency II rules, which come into force in 2012 and essentially would require insurers to hold more capital. 

Companies such as Legal & General, which have big pension annuities books, could be hit hard as the rules would force them to hold less risky, low-yielding assets that may not match their obligation to pay out to annuity holders over time.

Such fears, combined with news that Odey Asset Management, the hedge fund, had increased its short position in the sector, made L&G the biggest blue-chip faller, closing 6½p, or 8 per cent, down at 68p. Aviva fell 15p to 390¼p and Prudential slipped 11p to 514½p.

The FTSE 100 dropped 2.15 points to 4,817.55, further fuelling concerns of a stock market correction after its recent good run.

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.

Germany and France out of recession?

Official data has confirmed that Q2 GDP has come in positive 0.3% for both France and Germany.

Far better than expected and very surprising against a back drop of heavily contracting GDP for the nations at the back end of 2008 and early 2009.

In addition Eurozone GDP has just come in at -0.1% much better than the forecast of -0.5%- this means that the Eurozone as a whole is nearing a turn to positive growth.

In the markets the euro has gained a little against the USD but no move at all against the Pound. Personally I thing the good numbers should be taken with a pinch of salt as the GDP gains could align to stimulus input over a real turn in demand.

Recently we saw that Eurozone Industrial Production fell 0.6% with falls noted in France and Germany and credit conditions remain tight- especially in Germany.

I feel we need to look for more economic feedback to substantiate this gain in GDP before we can declare that France and Germany are on the road to recovery.

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.

Australian Dollar the big winner as risk appetite continues

More positives as equities continued their bull run with the FTSE posting another gain yesterday.

The markets were boosted by further signs that the weakness in the US economy was bottoming out. US new home sales rose 11% in June far outstripping expectation- firming and improvement in the housing sector is vital to underpinning recovery.

The housing sector is a leading indicator to downturn/upturn in any economy and the news yesterday was greeted well by the markets- sustainability is still the key going forward in this sector and we are still not out of the woods but closer than ever.

As is the trend this good news led to further weakness in the USD and stocks experiencing their longest rally since 2003. The dollar index dropped to its lowest level this year and the main beneficiaries were higher yielding commodity based currencies such as the New Zealand and Australian dollar.

Other economic data affirmed that Italian July consumer confidence rose to 107.5, up from 105.4 in June, and better than the median forecast of 105.9. It is the highest read since November 2007. Meanwhile, French industry demand fell in the Q-2, but less sharply than in previous two quarters.

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.

IMF forecasts recovery despite Eurozone GDP fall

The head of the International Monetary Fund (IMF) said today that he expects the global economy to recover in the first half of next year despite worse than expected figures from the eurozone economy showing that GDP shrank by 2.5 per cent during the first quarter.

The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline to a record of 4.6 per cent across the 16 countries that use the euro.

Germany revealed the worst fall in GDP, shrinking 3.8 per cent over three months in its worst performance since reunification in 1990. Economists had forecast German GDP would contract by 3 per cent.

However, the IMF's Dominique Strauss-Kahn said that green shoots of revival are everywhere but he stressed that banks’ balance sheets must be cleansed before an economic recovery can take place.

While today’s figures are far worse than expected, economists said the quarter would prove to be a low point, with the slowdown set to ease in the coming months.

France, Europe’s second-biggest economy, reported that GDP shrank by 1.2 per cent on the quarter while Italy, the next biggest, fell 2.4 per cent.

Much of Germany’s contraction was due to a sharp decline in exports, which make up a large proportion of the country’s economy, and a drop off in investment. The dramatic plunge in output was the fourth quarter in a row that Germany’s economy has shrunk.

Moreover, officials said fourth quarter GDP, which was previously the worst on record, was revised down to a contraction of 2.2 per cent, compared with the previously reported decline of 2.1 per cent.

Germany is now expecting a 6 per cent contraction this year and is predicting growth of just 0.5 per cent in 2010.

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.

Wise Money radar set on Thursdays ECB rate decision

The European Central Bank (ECB) surprised the markets by only cutting interest rates by 25 basis points to 1.25% last month.

A record low but when compared against the UK interest rates of 0.5% and against the US of 0-0.25% then comparatively still high in the current global climate.

The markets wanted to see more aggressive action amid rising unemployment and shrinking growth and all eyes will turn to the next ECB rate decision on Thursday. It is expected that another 25 basis point cut to 1% will materialize and the ECB may engage in additional "non conventional" measures- basically some form of Quantitative Easing to help the economy.

Stateside, the Fed plans to deliver results of stress tests on US banks to executives today that may show about 10 firms need additional capital to weather a deeper recession. An obvious way for banks to fill their capital requirements is via conversion of preference shares to common shares.

Last week, the Fed delayed the release of the tests that were originally scheduled for yesterday, as banks challenged some of the conclusions. 19 banks have been stress tested. Citigroup and Bank of America were allegedly among the banks found to need additional capital. It is rumoured that both firms disputed the Fed's determination.

Yesterday Citi rose 7.7% and Bank of America 19% after denying it was working of a plan to raise $10bn. I would be surprised if we didn't hear more soundbites about the stress tests. The results are likely to be made public later this week.

GB Pound is performing well testing the 1.50 level against the USD. The last time we were at this level was in mid April. A break above this level opens up the 1.52 level where we saw resistance in early January. GBPEUR has rallied and is currently trading at 1.1270 level, still off the 1.1381 high seen in mid April.

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.

Pendulum again swings towards risk appetite

Yesterday and overnight we have experienced a broad sell off in the US Dollar as a return to global risk appetite kicked in.

GBP/USD is approaching the 1.50 level again after a good start to trading and EUR/USD has tested the 1.3350 resistance level this morning. Last night we had the FOMC decision and as expected interest rates remained unchanged at 0.00- 0.25% and the statement commented that rates will remain low for "an extended period".

Furthermore the FED stuck to their guns following the March announcement that they will still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn.

A similar theme in euro zone yesterday as we again saw improved confidence data against a downgrading of German GDP to -6.0% vs. -2.25% originally forecast. The euro is trading higher however as sentiment and focus on the improved confidence data helped the currency.

We also need to remember that the euro interest rates are higher than the UK, US and Japan and the increased risk sentiment into yield will help the euro. We can see similar gains when looking at other higher yielding currencies such as the AUD and ZAR which have all posted gains- particularly impressive is the ZAR- the USD against the ZAR has weakened from levels over 10 recently to 8.5 currently.

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.

Risk aversion trades take centre stage

Swine Flu continues to dominate wise money chatter.

Unfortunately it is the unknown that is causing the problem rather than anything definite and until we know whether the infectiousness of the virus, which originated in Mexico, can be contained by the World Health Organisation then we won't be sure of the financial impact.

The death toll in Mexico has risen to 149 and the WHO has upgraded its alert level to phase 4, one stage below the much more serious pandemic category. Phase 4 was the level at which the latter stages of the SARS outbreak was categorised.

Initially the Mexican Peso and the Antipodean currencies were hit hardest but concerns remain that if the situation worsens then sectors other than just agriculture will be affected.

The mediterranean countries are earmarked as likely targets (Portugal, Italy, Greece and Spain) with a downturn in air travel and tourism at a time that these countries can least afford it.

The Euro slipped sharply, not only on the move into Dollars but also following comments from ECB members Nowotny and Trichet. The former stated that Eurozone rates would stay low for a long time and that the Central Bank was ready to use additional measures if necessary.

Trichet reinforced this message saying the ECB will take decisions on new measures at their May 7th meeting- for the next week or so, the Euro is vulnerable all round.

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.

Sterling leads the way

Despite yesterday’s trading volumes being severely depleted resulting from the Bank Holiday across much of Europe and the UK; there was plenty of activity - both in the equity and the currency markets.

The Dollar dropped sharply in the Far East on heavy short covering in Euro/Dollar helped by rumours of strong buying from an Asian Central Bank.

The rate rose from 1.3170 to get to 1.3390 before settling at 1.3365 and dragged the other majors with it. Cable moved from 1.4665 to reach 1.4870 before easing.

Sterling however, has tracked higher again following a UK bullish article that appeared in the Telegraph in which the Lombard economist predicts that the UK Housing crisis will end by Christmas.

This will make today’s release of the March RICS housing market survey even more eagerly awaited with expectations of a slightly firmer figure from February’s -78.3% (the lowest figure in more than 30-years).

Survey data suggests that growth in enquiries and viewings have become more buoyant resulting in a modest uptick in sales although financing constraints combined with fears of unemployment continue to hold back any significant recovery in activity.

Sterling however has started this morning’s session on the front foot hitting a 5-week high against the Euro of 1.1198 Other UK data is sparse for the following 3 days with most figures of significance deferred until next week owing to the Easter holiday.

This leaves forex players again watching equity news for direction and we have already seen European markets open firmer with the early release of very strong Quarter 1 figures from Goldman’s.

The Dollar ought to recover some of its recent lost ground especially given North Korea’s comments that they are considering building their own light-water nuclear plant. This could very well weaken the Yen and send the cross back up through 100

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.

Eurozone interest rates at record low of 1.25pc

The European Central Bank has cut interest rates in the eurozone to a record low of 1.25pc, down from 1.5pc.

Economists had been expecting a bigger reduction of half a percentage point to 1pc, but speaking at a press conference after the monthly decision ECB president Jean-Claude Trichet did not rule out further cuts.

He said that rates may be cut "in a measured way," adding that while inflationary pressures were subsiding, the outlook for the economy remained poor.

"The latest economic data and survey information confirm that the world economy, including the euro area, is undergoing a severe downturn. Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010," he said.

The ECB's Governing Council has reduced interest rates by a total of three percentage points since early October, after the global financial crisis intensified following Lehman Brothers' collapse in September.

Mr Trichet said the ECB would announce "non-standard" measures at its policy meeting in May in an attempt to stimulate the eurozone economy, which officially entered recession at the end of last year.

The Organisation for Economic Co-operation and Development (OECD) predicted earlier this week that the eurozone economy would contract by 4.1pc this year. That is a significantly bigger drop than the 2.2pc to 3.2pc fall forecast by the ECB.

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.

Fed shock the markets with a bumper $1.15 trillion stimulus plan

The Pound and the euro rallied significantly last night against the USD as the Federal Reserve shocked the market with a $1.15 trillion boost for the US economy.

This has caused the US dollar to be sold off and we have broken through 1.40 again as the equity markets rally. $300 billion will be made available for longer term treasury securities and $850 billion for the ailing Fannie Mae and Freddie Mac.

The FX markets witnessed big swings with EUR/USD rallying to 1.35 and USD/YEN moving back down to 95.

The market is now looking for safe haven currencies outside the US dollar as currency risk is dissipated. Sterling gained against the USD but remained subdued in other areas and weakened against the EUR with a break of 1.05 now in reach.

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.

Range trading continues for currencies

Euro zone data released this morning (CPI and EU unemployment) has carried the theme of the week and met the consensus expectations.

The fact that CPI has remained steady will slightly ease the pressure on the ECB to cut interest rates in their March meeting. In the forex markets the theme of the week for most currency pairs has been range bound trading.

EUR/USD looks the most likely to break its current range as it approaches 1.26, GBP/USD is also approaching support at 1.4150 and GBP/EUR is being buoyed by USD strength against EUR.

Over the last week we have continued to see the YEN unwinding particularly against the USD falling 9% from the low to high point in the week- a major shift in sentiment!

This is not surprising after a poor start to 2009 for the Japanese economy; figures demonstrated that exports fell 46% in January alone and their economy sank 3.3% in the last 3 months of 2008. This weak data was exasperated by the resignation of the Japanese finance minister Shoichi Nakagawa following his erratic performance at the recent G7 meeting.

The weakening of the Yen as discussed earlier this week underlines a shift in sentiment away from a currency previously conceived as a “safe haven”.

The trend of the “Dollar Index” which tracks the US currency against a basket of currencies demonstrated this movement away from Yen and back into the dollar. The index has already increased 8% in 2009 as investors are now looking at the US dollar as the favourable option for safety.

This is ironic given the awful data arising from the US economy.... yesterday we saw durable goods fall 5.2% in January and jobless claims soared to 667,000- very weak data which only helped to strengthen the dollar as risk aversion and a flight to safety stepped up a notch.

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.

Euro halts losing streak against the US Dollar

Yesterday the euro managed to halt its losing streak against the US dollar as the German finance minister stated that Germany would act if other countries in the euro zone required assistance, this helped to stall the euro decline and allay some of the fears of a potential banking crisis in Eastern Europe.

Data just released from Germany shows that the service sector has declined at a rapid pace and manufacturing activity also dipped slightly, this data emphasizes that there is little prospect to a near term end to the contraction.

EUR/USD yesterday made a recovery back to 1.2760 before retreating back to 1.26…the important factor is that it has not dropped below the 1.25 support level.

No real break in trend yesterday for the pound as it continued in a choppy range against the USD and the EUR. We have just seen retail sales data from the UK which is a surprisingly good number- showing a rise of 0.7% against the consensus of a fall of 0.1%.

The unexpected rise has been attributed to an increase in internet purchases and aggressive price cuts by retailers- in the immediate aftermath sterling moved higher against the USD and EUR.

In the US Barack Obama will host a summit next week to tackle the spiraling US deficit which is looking at levels of over a trillion dollars every year for the next decade. Obama is looking to revise a strategy to reduce the deficit over the next 10 years- if a plan is not put into place soon then this ballooning deficit should start to weigh on the USD especially if the equity markets start to recover.

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.

The euro is in the spotlight

The Pound held up well yesterday as the latest inflation data confirmed that CPI fell 0.7% in January bringing the annualized level to 3.0% which is down slightly from Decembers 3.1%.

The 3.0% level is still well above the Bank Of England’s 2% target for inflation and this data suggests that interest rates may not need to be cut in March as previously thought.

However inflation will remain a concern for the Bank Of England- Mervyn King has already signaled that inflation could fall sharply this year and todays BOE minutes will give us more insight to the sentiment of the MPC.

The euro was the big loser in the currency markets yesterday falling to 2 month lows against the dollar and also retreating against the pound…real concern is now prevalent on the health of eastern European banks.

With the threat of a downgrade in credit looming over eastern European subsidiaries of Swedish and Austrian banks coupled with the expectation of more banking losses in Europe forcing the euro lower.

The EUR/USD moved to a low of 1.2548 and 1.25 is now the key target before a break to 1.2312…GBP/EUR failed to hold above a move back to 1.13 yesterday, however this will again become the target as the spotlight remains on the euro and its woes.

Overnight the final approval was placed on the US stimulus package of $787bn which is desperately hoped will kick start the global economy. The urgency of Obama to introduce this stimulus was justified as General Motors and Chrysler have requested another $21.6bn on top of the $17.4bn already received.

This caused a sharp sell off in equities- in particular the Dow as risk aversion kicked in.

One to watch in the markets at the moment is USD/CAD which has broken a key resistance level of 1.26…with risk aversion and the falling value of Oil we could see this pair re-test the 1.30 level in the near term.

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.

The Euro finally breaks down through the 1.2700 support

This support level has held since early December against the US dollar.

The target going forward is now for a lower rate with the medium term outlook still towards 1.1500. This latest Euro weakness stemmed from renewed apprehension towards the economic outlook for Eastern Europe and a warning released by Moody's overnight that Western European Banks' rating would need to be downgraded as a result.

The largest exposures to Eastern Europe are carried by Banks from Austria and Sweden but significant loans are also carried by German, French, Belgian and Italian institutions, which combined, account for 84% of western European lending to the region.

This provoked a new wave of risk aversion trading this morning in Asia with weakness seen not only in the Euro but also the AUD, NZD and other regional currencies.

The Yen, which has been a safe haven since the demise of the carry trade mentality, didn't benefit either as their own domestic woes appear finally to be catching Japan up (ie the collapse in Japanese economic activity - down nearly 13% y/y, the move to a deficit on trade and rising political risk with the PM's approval rating falling below 10% and the untimely departure of the Finance Minister following his ‘Rome adventure').

The currency didn't fall however and whether it was on the back of suspected US$ bond redemptions or whether Market perception that we are going to have ultra-low global interest rates for some time to come (hence no renewal of carry trade) or a combination of both doesn't matter. The fact is that any weakening of the Yen might prove to be some time away.

In Europe, today's German ZEW survey will confirm the severity of the recession in the Eurozone. Think of a number and put a minus sign in front of it - you won't be far wrong.

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.

Interest rates announcements due soon

Despite the fact we are heading into the Bank of England'€™s rate decision tomorrow Sterling is holding up pretty well.

There is no doubt Sterling has a lot of in built bad news already in the price and a 0.5 % base rate cut is already priced in some may even argue that 1% is already accounted for.

On the other hand the ECB still stubbornly refuse to move their interest rate down from 2% and tomorrow we expect unchanged.

Short term GBP EURO could move lower on the back of the widening interest rate differentials, however the continuing downgrading of Euro Zone growth forecasts can only mean further pressure on the Euro and Sterling could be the main benefactor of this.

In the US the Obama effect looks like it could be running out of steam and the US$ will come under pressure as the Treasury struggles with its exploding balance sheet.

The short term rally we saw in the Australian Dollar has also fizzled out as the market comes to terms with what could be a protracted slowdown down under especially as the price of commodities continues to fall.

And over to Russia the fun continues as the Central Bank desperately tries to hold up a freefalling Rouble, a thankless task and this is also putting pressure on Poland and Hungary as their currencies get drawn into the global risk aversion play and continue to fall.

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.

Snows stops play in London

It's a very subdued start to the week with the Capital largely cut off by the this morning's huge snow dump.

Trading rooms are likely to be half staffed at best so expect a brief flurry of activity this morning followed by an early break for home.

We have seen Sterling come off this morning, largely it seems on Sunday's report from Moody's that they were going to cut Barclays' long term rating by 2 notches to Aa3.

Although this is only on line with the earlier move by Fitch, Far East traders took it as a reason to take profits on recent Sterling gains.

This morning we are to due to get the UK PMI survey which, following recent better than anticipated Eurozone flash PMI numbers and German IFO survey, is expected to show a modest rise for January.

From the US this afternoon we get the manufacturing ISM survey which is expected to come in around the same level as January's number.

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.

Chinese New Year Holiday

Plus today's Australia Day Bank Holiday heralds a very thin Far Eastern market for the next 5 days.

In the UK, Alistair Darling is bemoaning the recent moves by the markets in response to the Bank rescue package established last week, saying that the City has missed crucial details and that the package will work. Toys and pram come to mind.

The out-going MPC arch-dove, Blanchflower was also in print over the weekend doing what he does best, talking UK interest rates lower. He was however, more bullish than most in his medium term assessment for the UK with a fairly upbeat prognosis as opposed to the outlook for the Eurozone.

Talking of the Eurozone, there were mixed messages from ECB members with the usually less than hawkish Mersch stating that he would be uncomfortable with the risks of cutting rates much further from the current 2% as this would risk the ECB losing policy control.

Weber meanwhile, who is normally one of the more hawkish of the ECB policy board, admitted that the downturn in the economy had been more prolonged and steep than had been envisaged. Even though no comment was made on interest rates directly, the fact that Weber's opinion might have softened, could be very important going into the next meeting.

This week we have the Federal Reserve meeting which one would not expect to produce anything that we have not heard/seen before. Other than that, market participants will await any positive signs from the bits of economic data coming through as well as waiting comments from participants at the upcoming Davos get together.

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.

ECB cut 0.5% as expected

In the market, the ECB did cut rates but only by the very minimum required.

The President, M. Trichet then compounded the disappointment by implying that March would be the next €˜important meeting and as such, no further rate adjustments would take place before then. The Euro slipped against all other currencies during the trading day.

Concerns were more directed towards developments in both the US Banking system, following the results from JP Morgan, and the UK where estimates of additional capital required by the major domestic Banks, combined to send Bank shares spiralling down and cause rumour after rumour of possible events over the weekend.

Today we really wait for inflation data from the US followed by industrial production and then the Michegan sentiment survey. Following a proliferation of comment from Fed Members last evening, the Dollar has started on the back-foot but ahead of the long weekend in the States expect little further action until 1.30pm.

No data expected from the UK but we expect an announcement from the FSA some time today lifting the ban on the short selling in financial stocks. That won't help the current slide in shares.

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.

More bad news follows bad news

EuroSat reported yesterday that Industrial Production in the Eurozone fell by a massive 7.7% in the past year to November following a downward revision to 5.7% for October.

The Euro stuttered and fell as traders were taken aback by suddenness and size of the European economic slowdown. German data added to the gloom with a back of the envelope calculation on the back of yesterday's GDP release indicating that 4th Qtr GDP (workday adjusted) dropped by 1.4% which equates to a seasonally adjusted annualized rate of decline of an eye-watering 5.6%.

These sorts of numbers now put intense pressure on the ECB later today, to cut their Euro interest rate by at least 50 basis points with the economic environment screaming that nearer a full 1% is required.

In the US there was a huge headline fall in December retail sales (2.7%) and even excluding non-core items, vehicles, energy and food, still registered a 1.6% drop.

This was the fifth straight monthly fall and can be attributed still to the plunge seen in consumer confidence falling the drop in stock prices in early October.

This magnitude of rate of fall can not carry on and one has to assume a bottoming out probably in conjunction with a pick up in industrial production. Aside from the Yen, the US Dollar remains the best of a bad bunch in terms of holding currency.

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.

The Euro continues to be battered

With data from Germany hurting the currency ahead of the ECB Meeting tomorrow,the German GDP figure for 2008 came in exactly as the market had anticipated at +1.3% but the fall from +2.5% the previous year still made unpleasant reading.

The €˜workday adjusted number (whatever that is!) was even worse with a reduction from 2.6 in 2007 to 1.0 in 2008. Added to this, the German engineering orders in November fell by 30% in real terms from the previous year with the quarterly fall reported at 16% from a year ago. The November fall was split evenly (domestic -32% and foreign -29%) showing that the downturn is indeed global.

In the UK we have the prospect of a quiet end to the week data wise but this could really be €˜a lull before the mother of all storms' data-wise next week. By the end of next week, the probable overwhelming news of slowing/falling prices and a deep, ongoing recession in the UK should prove to be very bond/gilt positive and likely currency negative.

Expect lower levels against all the majors with the rate against the Euro the one that might buck the trend, depending upon the ECB action tomorrow. UK trades showed the biggest deficit since records began in 1697, -£8.33 billion in November.

Now I am not an expert but I would doubt that that sort of sum of money didn't even exist for many years following that date so it's the sort of useless fact that is good for pub-quizzes but little else. Just shows that the weaker Sterling is not filtering through yet into increased exports.

From the US we had a speech from Bernanke (in London) and one from Lacker (in the US). The latter's tone, though not as outright hawkish as he's been in the past, was still cautious in his comments. He said that Fed lending must be controlled, or else it could destabilise the markets and also warned on the risks that the Fed was running with its tnkering with fiscal policy at the same time as monetary policy.

Still, his overall view was soft - interest rates are likely to remain very low for a long while. Today we have several interesting items of data as well as the now obligatory Fed speaker.

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.