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Once again, sterling is making waves. In contrast to its recent bout of weakness against the US dollar, £/$ moved significantly higher following yesterday morning’s meeting of ‘City’ economists convened by the Bank of England. On the face of it, this price action appeared to reflect a reassessment by markets, which had anticipated a possible announcement on cutting the interest rate paid to banks to keep money on deposit. In the event, the meeting was designed to raise the Bank’s level of communication with market participants and also to clarify the objectives of its asset purchase programme (quantitative easing, or QE). This morning rallies on Sterling have failed at $ 1.6125 and €1.1020 however we are well placed for moves higher.

Overnight once again the Australian economy goes from strength to strength with retail sales improving and a clear signal that the Aussie economy may be over the worst and it could be the RBA that are the first to raise rates.

The UK newspaper The Sun, proclaimed today “That labour has lost it”,and it now seems that Mr. Brown is just seeing out his term.Perversley this could have a positive effect on Serling as the markets welcome “the change “the conservative party could bring.

Sterling this morning has enjoyed a brief rally, on the back of better than expected economic numbers. Key levels to watch $ 1.60 & € 1.10.if we can break and hold above these levels then  Sterling could continue to rally.

Currency markets are trying to come to terms with just what the Yen policy of the new Japanese Government is and what the repercussions are for other global currencies. The series of conflicting messages coming from the new Finance Minister, Mr Fujii, is keeping attention on the Government’s likely tolerance for a stronger currency but on balance, it appears that intervention is unlikely. The Finance Ministry would clearly prefer not to get involved but feel that in the current economic phase, a state of laissez-faire’ might not be viewed too favourably at home. Hence we get more vocal than actual support for the Dollar - the Finance Minister, Gyohten, commented that Japan should fully support the US$ as the global reserve currency. Outlook for the Yen is for further strength over the next few weeks, targeting the 85.00 level but that the Dollar will begin to have recovered prior to year end with estimates of the cross being in the low 90s by then.
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Well, it’s a common question asked by every holidaymaker, job seeker, expat moving to Spain for a second home or retiring in Spain. But the cost of living is something that depends on your lifestyle and the area where you want to be living in. No doubt, Spain is much cheaper compared to the UK and some other European Union countries but considering the increasing prices of everyday commodities due to recession, one might even find these increases a little surprising.

Living in a rented apartment in metropolitan cities like Madrid and Barcelona requires additional daily spending than living in a village in the Costa del Sol. Still the cost of living in a highly developed coastal resort town like Marbella can in some cases cost a little more even than some of the main cities. Because of the tourism influx to the coastal areas and the increasing number of Britons who have retired here, the seaside areas are starting to become increasingly expensive.

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The G20 meeting concluded with little unexpected emerging . The draft statement promised to maintain policy stimulus for as long as it was necessary and to ensure that policies were in place to rebalance the world’s economies. Other than that, details were sketchy and if hadn’t been for comments from the new Japanese Finance Minister, Mr Fujii followed by a good amount of back-tracking, the meeting might very well have come and gone without causing a ripple in global markets. As it was, Mr Fujii initially stated that he viewed previous intervention as inappropriate and that recent moves were not abnormal which was taken as affirming the new Finance Minister’s non-intervention stance and saw the Yen firm up, reaching 88.25 against a broadly firmer Dollar. The Yen has been in buoyant mood over the last few weeks on repatriation trades ahead of the half-year end and Mr Fujii’s comments added impetus to the Yen buying. This was only tempered when he added that his earlier comments were not a sign of neglect over the Yen’s value and that he is watching the Yen’s rise carefully. He added that he was coming to the view that the move is becoming ‘one-sided’. The Yen softened a little but do not expect any serious weakening prior to October trading…

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This week Sterling has dropped to levels not seen since April, and we could retest the all time low € 1.0210 set last December. The catalyst for the latest sell off was a set of comments from the Bank of England underlining the fact that a weak pound was good for the UK economy, great news if you’re an exporter bad news if you’re an importer .The short term outlook for Sterling is more of the same as the market takes the easy option and sells the pound knowing that they have the backing of the central bank. However opinions are so divided on GBP/EUR ,that year end forecasts for 2010 range from as low as 85 cents to as high as € 1.30.

The key going forward will be economic growth, and this is what the BoE is hoping a weaker pound will achive.Get it right and the UK will start to raise interest rates faster than the Euro Zone and Sterling will soar. Get it wrong and with an election looming next year the pound could be in for one hell of a beating !

The combination of negative sentiment towards the pound’s value from the supposed Guardian of the currency, the Bank of England, coupled with international concern over the UK’s prospects going forward and rumours of the Bank calling a ‘crisis’ meeting of economists have left Sterling mighty vulnerable. As I said yesterday, it appears that any bounce in its value is solely down to Sterling shorts taking profits and then looking for a better level to re-open their short positions. Expect a lull during the day but then a dip lower at the European close. The weekend press sentiment will be vital for Sterling’s health next week as the Far East seem to take what appears in the Sunday Times business comment as being gospel and trade accordingly.

Outside of Sterling, interest centres around the G20 get together this weekend and the Swiss National Bank. In Pittsburgh, the focus appears to be shifting away from the Global Financial Crisis towards wranglings over the make up and operation of the IMF. Recent proposals from the US remove the UK and France from the board of the ‘new’ IMF, which, as I am sure you don’t need telling, didn’t go down well this side of the Atlantic. Watch this space….. Suffice to say, I don’t expect much of substance related to currencies or interest rates but plenty of hot air about bankers’ bonuses and who should ‘rule the world’ in terms of Financial Centre.

The Swiss continue their battle against a stronger Franc, emulating King Canute in his abortive attempt to hold back the tide. The nearer we get to 1.50 in Euro/Swiss, the more vocal the Central Bank becomes. Expect lots of comment over the next few days. Conversely, the new Japanese Finance Minister has affirmed that the BoJ will not embark on an exercise to weaken the Yen …. for now anyway.

Bits and pieces out today but G20 the main point of interest….