After a week of poor or lacklustre data, the drop of 0.8% in UK retail sales was enough cause a sharp drop in the value of the Pound. Sterling hit its lowest level against the mythical basket of currencies since the start of the year. The slide was helped by a warning from credit ratings agency Moody’s that slower growth, as forecast in the budget, could make it harder for the government to rein in debt levels. It is a bit of ‘stating the obvious’ but the markets seem to trust credit ratings agencies. Would it be churlish to remind ourselves that these are the same agencies who though mortgage backed securities were triple A rated right up until they were proven to be worthless. Perhaps they are over compensating now by warning about everything just in case they are right.
That news plus lowered expectations of interest rate hikes after the budget and the lack of interest rate hiking momentum at the Bank of England allowed the drop in Sterling. However Monetary Policy Committee member Spencer Dale explained his move to the dark side i.e. supporters of higher interest rates, because he says inflation should remain higher for longer.
Elsewhere, US fresh jobless claims data showed further improvement and the US Dollar had a relatively good day. It didn’t make much headway against the Euro but did elsewhere. Today’s final assessment of 4th quarter economic growth may well show an upward revision and that is likely to give the US Dollar another boost. Analysts are watching the direction of share prices around the globe to assess US Dollar direction. Recent moves have seen a direct correlation between higher equities prices and a weaker US Dollar.
The NZ Dollar continued to strength following improved economic growth data for the 4th quarter of 2010. I know our Dealing Director Sam Stanley, who is a Christchurch boy, has been in contact with a whole heap of people working on the rebuild after the appalling earthquake. All of that work will boost economic performance so the Upbeat tone is entirely apt.
Near neighbour, the Australian Dollar is also riding high, driven by high commodity prices boosting earnings, a very positive report suggesting Australia’s fiscal position is amongst the best in the world, by high interest rate yields and perhaps a general perception that the Australian Dollar is not the risky currency that it once was. . Higher oil and commodity prices are boosting the Canadian Dollar as well. In fact so is the flow of funds into Canada amongst inve4stors seeking better interest rate returns in the North American continent. The US base rate is virtually 0%.
All in all, this week is ending just as it started; in volatile fashion and with the potential to take us through the end of March in Similar vein. But before we all get to over excited, the weekend is going to interrupt all the fun. Sorry about that. You’ll all have to clear off and enjoy yourselves for a couple of days and then we can reconvene for the real joy of life in the forex market on Monday. I bet you can’t wait.
Before then, England is playing Wales at football football. I can only hope that England imitate their rugby playing counterparts. (I can hear all the welsh readers groaning from here) but I am English to the core and I make no apology for that. I also hope the Welsh team have learned all the welsh lyrics to Mae Hen Wlad Fy Nhadau (Crikey that really upsets the spell checker) or they will have Miss Wales and probably Katherine Jenkins to answer to. Now on second thoughts, it might be worth forgetting a line or two guys. If you are going to get told off, I think I would choose Miss Wales and Katherine Jenkins to do the telling.
