The currency blog

This morning the markets are relatively steady after the severe volatility experienced yesterday. The USD is still on the back foot after falling over 4% against the euro and just under 4% against the pound; the USD fell against a basket of currencies as investors sought other avenues following the Feds plans to buy $1.2tn of debt. Effectively the fed is creating money in a similar context to Quantitative Easing; last week the Swiss Franc was heavily sold off after introducing QE and previously the pound was also sold following QE’s introduction. The sell off in the dollar was its biggest one day loss since 1985 and follows a prolonged period of US dollar strength.
The euro gaining more against the greenback than sterling allowed it to push higher against sterling; GBP/EUR is still caught in a tight trading range with the euro at the moment still holding firm. Data just released from the eurozone in the form of January industrial production showed a decline of -3.5% month on month, versus median forecasts of -4.0%. The monthly decline is the fifth straight month of contraction and is an awful figure from the eurozone- the euro bulls will be quaking and rightly so…
Fed chairman Ben Bernanke will be speaking later today at a convention in Phoenix so his comments on recent developments will be scrutinized.

Ryanair calculates that their decision to close its base at Valencia’s Manises airport will cost around 750 jobs given that more than seventy flights a week, and roughly three quarter of a million international passengers each year, will be lost to the region as a result.

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According to the latest statistics, Britons are the biggest collection of foreigners in the Valencian Community, with 135,005 residents in the autonomy.

However not far behind are the Rumanians, with 128,097 residents.

This latter figure marks a 33% increase over 2007, whilst other nationalities with a significant presence in the autonomy are Bolivians and Italians.

The latest figures reveal that some 847,339 foreigners reside in the three provinces comprising the Valencian Community: Alicante (446,368), Valencia (294.846), and Castellón (106,125).

The pound and the euro rallied significantly last night against the USD as the Federal Reserve shocked the market with a $1.15 trillion boost for the US economy. The funds will be used to buy government debt and to liquidate Fannie Mae and Freddie Mac.

This has caused the US dollar to be sold off and we have broken through 1.40 again as the equity markets rally. The Fed kept interest rates on hold at 0-0.25 % as expected, however the sheer scale of the plans surprised the markets. $300 billion will be made available for longer term treasury securities and $850 billion for the ailing Fannie Mae and Freddie Mac.

The FX markets witnessed big swings with EUR/USD rallying to 1.35 and USD/YEN moving back down to 95. The market is now looking for safe haven currencies outside the US dollar as currency risk is dissipated. Sterling gained against the USD but remained subdued in other areas and weakened against the EUR with a break of 1.05 now in reach.

The FOMC are very likely to maintain rates at current levels; what the focus will be on is the statement following which will outline any additional measures that the Federal reserve may opt for. Data today from the US showed that consumer prices increased for a second straight month so reducing the risk of deflationary pressure…so will there be any additional measures introduced by the Fed?

will sterling manage to break back through 1.40 and this time sustain it?