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Halo Financial - Weekly Currency Insight

Today's Highlights

• Euro’s troubled times continue
• US employment numbers disappoint
• Sterling hits 20 month high

The paucity of data on Thursday certainly didn’t result in a lack of activity and the most active currency was the Pound. Sterling continued to benefit from MPC member Adam Posen moving to the dark side and changing his position on QE (that’s quantitative easing and not Her Majesty Queen Elizabeth II by the way). Sterling was also helped by the slight improvement in some aspects of the unemployment data. If today’s retail sales data is equally encouraging, Sterling could finish the week with a proper flourish. Having pushed above €1.22 and US$1.60 at the interbank level, we will be watching to see whether the Pound has the vitality to close the week at those levels or even to extend the gains into the last week of the month. The markets were expecting rather strong retail sales numbers and they were not disappointed. Sterling rallied in early trade and maintained that strength through the latter part of the day.

US employment data disappointed yesterday. The markets had expected a fairly sizable drop in fresh jobless claims but when the figure dropped by just 2,000, the US Dollar weakened. As for today, the US data cupboard is empty so the US Dollar will be hefted to and fro by events in the EU, the commodity markets and the Far East.

Yesterday’s events included another rise in the interest Spain is paying on its bonds but EU leaders took comfort from the fact that Spain did actually sell its entire bond issue; something both Spain and Germany have failed to do in recent weeks. It has been described as Europe dodging a bullet but the euro remains on the back foot and there are fears that this morning’s release of the IFO business confidence indices will be negative. Euro weakness could be extended as a result. If the polls are to be believed, power may be slipping away from President Sarkozy in the upcoming French Presidential elections. Whether support for the EU bailout and all that it entails will decline with a change of President is open to debate but Monsieur Hollande has some very different ideas on EU debt to President Sarkozy.

G20 leaders meet in Washington this weekend (haven’t they heard of tele-conferencing in this age of austerity and global warming - cooling - warming - raining - drought - hailing - hosepipe banning - climate change).

Sterling is also strong against the Australian and New Zealand Dollars. In the last three years, Australia and New Zealand have be the destination of choice for investors seeking higher interest rate returns but as nervousness abounds and as the threat of lower interest rates increases in both countries, the appeal of the Aussie and Kiwi Dollars has diminished somewhat. Hence we are starting to contemplate A$1.60 and NZ$ 2.00 to the Pound as long as Sterling doesn’t blow it. The same caveat applies over UK retail sales so those of a nervous disposition may want to buy their AUD and NZD before Sterling gets a chance to stumble.

The Canadian Dollar is weaker, largely in line with US Dollar weakness and largely in coordination with the Australasian currencies which are also susceptible to commodity market movements. I am a little surprised that China’s well publicized steps to expand lending and therefore reverse the fall in GDP growth, haven’t caused a rally in commodity prices but global demand is still muted and that is perhaps the key.

And then we are into a weekend of hot F1 racing and cold strife in Bahrain, hot air in Washington, rain across much of the UK and cold beers sweeping in from the fridge with a bit of luck.

I hope yours is a good one.

For a free, non-obligation assessment of your foreign exchange needs and an explanation of the best way to manage your currency transactions, please contact Halo Financial’s experts on +44 (0)20 7350 5474 quoting Guide2Paysdelaloire or use the buttons below to request a free call back or open a trading facility.

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