Currency Update from Halo Financial

The President of the European Central Bank, Mario Draghi tried to settle market nerves yesterday when he repeated previous comments in stating that he sees further signs of stabilisation in the Eurozone. He also commented that he sees little sign of increasing inflation at the moment. His comments were echoed by the Bundesbank’s President Weidmann who also hinted that the ECB as looking at ways to withdraw stimulus from the economy. German economic expectations would support that view; the ZEW index of business expectations rose to its highest level in a year.

The euro ended yesterday a little weaker in spite of an announcement from the Greek Finance Ministry that, in addition to the well publicised €130 Billion EU bailout, Greece will also receive an additional €8.2 Billion from the International Monetary Fund. There is a suggestion in some quarters that a disagreement between China and the likes of the EU and US over ‘rare earth metals’ may jeopardise China’s commitment to investing in Europe and thus reduce the Eurozone’s funding options. It is a story that may grow. We will get another chance to assess whether these optimistic views are valid when the final estimate of the Eurozone’s February inflation is published this morning. The previous estimate was 2.7% on an annualised basis and we expect that to be confirmed today. We will also get Eurozone industrial production data which is forecast to reflect a slowdown in the rate of decline.  

Sterling had a reasonable day; recovering a little against the Euro and US Dollar and stabilising against the Australasian Dollars and Canadian Dollar. The announcement of 1,000 jobs being created by Jaguar Land Rover was good news and the news that the UK public are reducing their debt levels was also seen as a positive. We also heard that the Chancellor is considering issuing very long term bonds with maturities of 50 years or more to take advantage of the very low interest rates and the UK’s AAA credit rating to secure cheap money for the long term. He’s been watching those adverts hasn’t he; a consolidation loan with affordable monthly payments is what this is. It may well be effective is evening out government cash flow in the future though. I am sure we will hear more of that today while the Prime Minister drools over Air Force 1 and watches basketball but guaranteed long term funding is likely to consolidate the UK’s credit rating. Today’s big UK news will be the unemployment numbers which we all hope will reflect at least a slowdown in the job losses. 

Later in the day on Tuesday, we heard that US Retail Sales were in line with estimates at 1.1%. That marks a significant improvement on the previous month; further evidence that America is dragging itself out of recovery. The Federal Reserve certainly thinks that is the case. They left their base interest rate on hold at their meeting late yesterday and did not make any change to their asset purchase program. They spoke of the encouraging signs of a marked improvement in the US labour market.

Overnight we heard that Australian consumer confidence dropped significantly in March. The 96.3 reading is back at December levels and marks a worrying sign for the Reserve Bank of Australia. There are also signs that Australian Government bonds are not paying enough of a premium to tempt investors away from the US Treasury market so there is potential for the Aussie Dollar to weaken. However, there are substantial technical hurdles to overcome before we can see any rally in the Sterling - Australian Dollar exchange rate.

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Contact clare.allen@halofinancial.com for more information on how Halo can help you save money on your international money transfers. Alternatively complete a currency enquiry form: 

 
Posted by: Clare Halo on 14 March 2012