Euro:
Unfortunately on today’s agenda it seems the priority is setting new lows. The Euro fell to a 10-month low against the dollar as well as hitting an all time new low against the Swiss Franc. The euro fell as low as 1.4233 francs, before trading at 1.4250 as of 6:30 a.m. As uncertainty reigns over the prospects for Greece, many investors have turned their back on European assets. This is most visible in the yield spread between Greek government bonds and the German equivalent; the bund. The yield is the interest paid on the bond relative to price, as demand for Greek bonds fall, the yield increases. Currently, German Bunds are favoured by investors and as such we are seeing the yield decrease as prices rise. If sentiment about the state of both Greek and German finances were the same then the yield spread would be very similar, as it stands the yield spread is not similar.
The emphasis this week is on the outcome from the EU summit, “It looks like the euro zone can’t resolve the Greek crisis by themselves so they are going to the IMF for help,” said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co. “This casts some doubt over the strength of the European Union. The bias is to sell the euro.”
Pound:
Sterling is taking advantage of a weaker Euro this morning trading up towards 1.12 (+0.42%) but is down by over half a percent against the strong US dollar. The main release for the UK today comes from a political arena with Darling delivering what is sure to be his last budget amongst these times of economic “uncertainty” (that fear word). The market will clearly be looking for any signs from the government on how they intend to tackle the fiscal mess but given how close we are to polling day the clarity we are looking for is unlikely to materialise. For now it seems we are getting hints that the government is starting to make significant cut backs starting with the roads and the hundreds of pot holes I am now driving over in my local area! It seems with us being so close to the election this market will be more concerned about the political implications from what Darling delivers rather than specific economic implications.
It was only the beginning of this month when the pound saw it’s biggest fall for a year on the back of opinion polls pointing towards a “hung parliament”. “If you see another poll (after the budget) with Labour reducing the Conservative lead to 2 percent, that could put pressure on sterling and gilts,” Philip Shaw, chief economist at Investec, said.
Today is likely to see some volatility in the currency markets and financial markets as a whole with bank shares particularly vulnerable if Darling signals that he will tax the sector.
David Cameron on… UK economy & coming Labour budget (23Mar10)
US Dollar: Continuing from yesterdays theme; dollar strength, the greenback has pushed higher again this morning after a strong showing in yesterday’s session. The major driving force for this dollar appreciation is four-fold. Firstly we have the problems surrounding the Euro which should not be new to anyone. Against the dollar, the euro fell to $1.3414 from $1.3512 in late North American trading on Tuesday. Secondly, Alistair Darling is due to give his speech this afternoon at 12:30 and many traders and investors are holding tight on taking positions before getting a feel for the U.K economy and what lies ahead. The British pound traded at $1.4968, down from $1.5041. Thirdly, oil is very closely linked to the US dollar, at the moment oil is starting to trade lower on reduced demand and as such investors are moving into the dollar and away from crude oil. Last but
not least the Greenback broadly climbed higher on speculation that improving economic data will allow the Fed to ends its stimulus measures ahead of other major economies. “If expectations about future rate increases rise amid the plethora of positive data, the dollar will strengthen against the yen and euro,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. Both the Euro and Sterling open down this morning against the dollar, worst off is the Euro down 1.02% at $1.3365
Quote of the Day
“Take risks: if you win, you will be happy; if you lose, you will be wise.” – Anon
