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Currency Update from Halo Financial
A miracle happened overnight. You may have missed it but after weeks of Sterling strength the Governor of the Bank of England finally spoke and the amazing thing is that Sterling didn’t collapse. In the words of Victor Meldrew, ‘I don’t believe it’. In fact, Mervyn King was speaking about the prelude to the 2008 market collapse and claiming none of it was the fault of the BOE. That Hindsight thing is awesome isn’t it. I can précis his speech thus, ‘It wasn’t me guv, it was those nasty, greedy, misguided bankers and I told them it would happen but they didn’t listen’. I think that just about sums it up although he did say things were still bad and that the recovery was too weak and that European problems were a major concern. But the fact that Merv spoke and the Pound stayed upright is still a marvel to behold.
If I rewind a little to yesterday; mixed data and mixed signals were the driving forces - most notably from the US. The ADP private payrolls report disappointed and at 61.2, the ISM index was way below market expectations. US factory orders were marginally less awful than analysts had expected at minus 1.5% against a forecast of minus 1.6%. In spite of this, the US Dollar held up relatively well through the day.
European traders returned from their May Day shenanigans and set about selling European equities. The euro trickled lower throughout the day and starts today at its weakest level against the Pound in nearly two years. Their move from equities to safer products like German government bonds is very evident from the market rates and they are right to be cautious. Eurozone unemployment rose to a staggering 10.9% last month, the newswires were buzzing with rumours that some members of the European Central Bank are becoming increasingly concerned over the Eurozone’s economic outlook. Other concerns include a Greek party leader warning of a return to the Drachma and fears that credit rating agency, Moody’s was planning to release the results of its bank ratings review for Italian banks. But all of that was a mere warm-up act to today’s European Central Bank interest rate decision and press conference. We will await that with abated breath because the tone of their statement and Mario Draghi’s comments will be very influential in the direction of the Euro.
A slowdown in Chinese manufacturing confidence has harmed the Australian and New Zealand Dollars in the last 24 hours and news overnight that New Zealand’s unemployment rate rose to 6.7%, did little to help the Kiwi Dollar which is currently just above NZ$2 to the Pound at an interbank level. If Sterling can hold onto that level for a couple of days, we could be more confident that this is the start of a more substantial advance in this currency pair.Today’s data diary also includes US non-farm productivity and labour costs as well as the weekly jobless claims and the service sector ISM index. The latter report is the key to the US Dollars movements over the afternoon session. As with the UK, the service sector is the largest part of the US economy so poor results here would undermine the good work done by other positive US data and weakness in the USD could well ensue.
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Posted by: Clare Halo on 03 May 2012