February 23rd, 2010 by Toby
Sterling is now trading down against the USD but has lost out against the Euro after initially breaking 1.14 in early morning trading. The state of public sector finances is continuing to be a hot topic (as it has been for a long time) for the UK and was made worse by last weekâ€™s official figures showed government borrowing at Â£4.3 billion in Jan. Problems with the UK economy have been amplified by a tiny return to economic growth, weakening business and mortgage lending and slow retail sales.
Going back to the public deficit the problem is being made even more complicated by uncertainty over which party is likely to gain a majority vote in the general election and to make matters worse neither party to date has laid out their plan for tackling this huge public sector debt. This is continuing to make investors think twice about buying the pound. Mervyn King confirmed this morning in the inflation report hearings that weâ€œhave a very large fiscal deficit and we are yet to tackle thatâ€ but did say he would be â€œimmensely surprised if the UK loses itâ€™s triple AAA credit ratingâ€. Mortgage approvals data has continued a bad run of economic data for the UK coming out at 35.1k much lower than 45.3k forecast. For now sterling remains vulnerable to further falls against the major currencies.
This morning see a slight dip in the strength of the dollar as investors hold off from buying the greenback in order to gauge the outcome of events in the Euro Zone. The Pound was up against the Dollar in early trading this morning, however negative data from the BoE hearing at 9:15 this morning saw those early gains disappear as the Dollar is up against Sterling by 0.2% with further dollar gains likely. A mid week announcement by the federal Reserve is like to announce that interest rates are to remain low, however, whilst this may initially cause slight resistance in the rise of the dollar, the US looks to be ahead of Britain and the Euro zone in increasing interest rates on the back of positive economic data. The Dollar is still down against the Euro as USD/GBP movements have been driven by poor British data rather than a rallying Dollar.
The Euro is up against both Sterling and Dollar as investors play the waiting game on news of a Greek bailout. This week sees several meetings between European Union representatives and Greek finance ministers in order to discuss Greek finances. Sentiment on the Euro is finely balanced with some investors looking to the future and anticipating a bailout whilst others are moving out of the Euro to the Dollar as US data shows positive signs. “The euro is going to have a tough time rallying until the Greek saga comes to an end even if there have been fresh reports that Greece could receive aid from some E.U. nations and they may actually want aid this time around,” said Kathy Lien, director of currency research at GFT Forex in New York. Whilst the fate of the Euro hinges on the financial position of Greece, many investors are waiting for news from The Federal Reserve on interest rates. A decision to keep rates low will, for the short term, weaken the dollar but the bigger picture reveals the US are closer to policy tightening then either Britain or the Euro Zone.
Quote of the Day
“We cannot do everything at once, but we can do something at once.” – Calvin Coolidge
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