US Dollar:
This week could be an interesting week for the Dollar. Today sees the TIC long term purchases data which is the difference in value between foreign long-term securities purchased by US citizens and US long-term securities purchased by foreigners during the reported period. A positive figure will indicate an increase or bias in buying US securities which will strengthen the Dollar as US securities have to be bought in Dollars.
On Tuesday the Federal Reserve announces its fund rate. The last announcement caught everyone by surprise as the Fed raised the rate by 0.25%, however two things are important here, firstly, this rate is not the US interest rate, this is the rate of interest at which banks lend balances held at the Federal Reserve to other banks overnight. Secondly, after the market adjusted to the last hike, it was widely acknowledged that the rate decision was to-be-expected and consequently the dollar paired back some of its gains. Many expected Tuesday’s decision to remain unchanged, but it is worth watching out for. The Dollar is up this morning on news that the U.K government is edging closer to losing its AAA status.
Pound:
Sterling has failed to get any kick start that we were looking for this morning and instead has fallen on the back of more disappointing economic data. Concerns have now increased over the UK’s biggest obsession (house prices) as rightmove property portal reported today that prices in March have risen by the smallest margin on record for this time of the year. A decline in this sector is an indicator to the financial markets that there will be a further slowdown in the economy as unemployment, public sector spending cuts and the prospect of higher interest rates hits consumers.
Continuing this tone the BoE have also warned that weak growth could cause more job losses as consumer demand remains “sluggish”. “If … the recovery in demand is more sluggish than businesses expect, or more businesses are forced into liquidation, then there is a risk that employment could fall further,” Renato Faccini and Christopher Hackworth wrote in a paper in the Bank’s latest Quarterly Bulletin, which is published today.
To add “further fuel” to the fire the ratings agency Moody’s have warned that the UK’s AAA credit rating remains under pressure from spiraling national debt. Moody’s said “the recovery that has taken hold across the global economy remains fragile even where aggressively expansionary fiscal and monetary policies have taken place” However I can report some positive news this morning, the sun is out and I was feeling warm in my winter jacket walking to work, bring on the summer of love!
Euro:
Friday saw the Euro rise to a peak of $1.3796 which was hit when Euro Zone January industrial output showed its biggest ever monthly increase, prompting speculators to pare back short euro positions. We also saw strength in the Euro as reports suggested Euro Zone ministers had agreed to a rescue strategy for Greece. Interestingly, in a reverse of fortunes the euro snapped three days of gains versus the dollar this morning after some European finance ministers ruled out aid for Greece as it seeks to narrow a budget deficit that is the largest in the common-currency region.
This morning sees the Euro down on the Dollar as ratings agency Moody’s issued a warning against the four largest debt issuers, three of which being European; UK, France and Germany.
Tuesday sees the German ZEW Economic Sentiment figures out, a key indicator of economic health. Previous figures were better than expected so a repeat would see some renewed strength in the Euro. This morning sees the Euro up on Sterling as more woes about the UK economy surface, GBP/EUR 1.0990.
In more positive news, the spectacularly uneventful opening to the Grand Prix season saw a Spaniard win, driving an Italian car.
Are you running the show in Eurozone crisis, Mr President? John Bufton MEP asks Barroso
Quote of the Day
“Later never exists.” – Anon.
