The Euro, on the other hand, had a very good day

FX Market Overview

Before you rush off to buy either the Xfactor version or the Biffy Clyro version of ‘When we Collide’ you probably want to know what is happening in the currency markets because, in spite of what the newspapers may think, this is much more important stuff. Sadly, the answer is that not a lot happened yesterday. A lack of data and nervousness ahead of this evening’s US interest rate decision kept traders’ heads down but there was a little movement in Sterling and the Euro in particular.

The Pound lost a bit of ground after comments from the Bank of England’s Deputy Governor, Charlie Bean (always sounds like a character from a childrens book to me). His warning that inflation was going to say high would have strengthened the Pound apart from the lack of confirmation of what the BOE was going to do about it. They have already sated that they intend to reduce the unprecedented level of economic stimulus but never given time frames for that change. So hearing that inflation will remain high and knowing the BOE is reticent about cutting the cash supply and raising inflation was enough to see Sterling slip off its pedestal. That move wasn’t helped by the poor housing market reports from the Royal Institution for Chartered Surveyors and the Rightmove website. This morning’s UK inflation data is clearly very important after Charlie Bean’s comments (do you recon he had a teacher who spoke like this “WAH A-WAH WAAH WAH.”?) Sorry; that’s childish isn’t it. Sorry. There is a feeling that the BOE will have to expand its Quantitative easing program to stimulate growth but they will have to ignore their prime remit of inflation control if they are to follow that path. It’s a proper quandary.

The Euro, on the other hand, had a very good day. It pushed up to the top of its range against the US Dollar and shoved the Pound a cent lower. The assertion from the German Finance Minster that no country would be ejected from the Euro was seen as a positive although he conspicuously didn’t rule out a country extracting itself. The Euro was also flattered by the lack of US news and the impending US interest rate decision.

The Federal Open Market Committee meets today and we will hear the pronouncements on US interest rates and monetary stimulus. There is no way they will move the base interest rate which is a variable level of 0 to 0.25% but we are not so certain on their Troubled Asset Repurchase Plan (TARP to its friends) because having set aside $2.3 trillion for quantitative easing, why not throw another half a trillion into the pot! What difference would it make to the massive delay in getting that money back and if it buys short term consumer and business confidence, it may just accelerate the recovery. The counter to that is that if $2.3 trillion isn’t doing the job then perhaps the plan itself is flawed and I tend to think the latter is perhaps true because many countries have tried this kind of bond buying but it does seem, from lending figures and high credit market interest rates that the cheap money isn’t getting to the consumer or business end of the market but no one in authority seems to care.

This evening also brings the Japanese Tankan survey of business confidence which is expected to show a flattening out or even a decline in business confidence, which would be the first fall in 7 consecutive quarters. That would have a negative effect on the Australasian Dollars.

However, the Australian Dollar had rather a good day after it was announced that the Peoples Bank of China had not raised its base interest rate. That was a surprise to many commentators who expected some fiscal tightening but it does mean Aussie exports to China might continue apace.

The New Zealand Dollar, on the other hand, didn’t find the same sort of buying interest and the Sterling - NZ Dollar exchange rate remains near the top of its range this morning but cannot break above this pesky NZ$ 2.11 range top

But most local authorities won’t have time for all of this; they will be assessing the impact of the government’s spending cuts and working out how to find the extra cash. I tend to agree with Eric Pickles that councils which have put the odd twenty million quid away for a rainy day should know that IT IS POURING OUT HERE and raid the piggy bank before they start passing on all the costs to the taxpayers again.

Finally, if you ever frequent drive through fast food places, you may want to be nice to the mechanically voiced person on the other end of the speaker system in future. An employee at a Wendy’s restaurant in Palm Beach was arrested for assault after a verbal exchange over the intercom ended in an attack in the drive through lane. The employee, Rictoria Bethea (sic) asked the customer to speak up several time s but received abuse in return. After warning the customer that "There's no need to disrespect me, because I will go out there and kick your a**,” Bethea did just that, yanking the woman’s hair extension out and punching her in the face. Might I suggest elocution and voice projection training before you order your next full fat burger with full fat fries and a diet coke. (That last item turns the whole order into ‘health food’ by the way).

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