The currency blog

All eyes will fall today on Alistair Darling’s pre-Budget report today; for the FX markets close attention will be paid to the repayment of debt and growth forecasts along with the potential for a tax on UK bankers’ bonuses. All will be revealed later but the sentiment seems to be turning sterling negative as sterling has been sold off this morning against the Yen and USD. Today we have seen the UK October trade deficit widen to 7.1 billion against the forecast of 6.85 billion- not good timing for the chancellor as he looks to solve this ever growing issue. Other data from the UK confirms that whilst UK consumer confidence has come in positive, UK manufacturing output has stagnated in October and the British Chambers of Commerce downwardly revised its GDP expectations for 2009 and 2010. They are forecasting a 4.6% decline for GDP in 2009 and the 2010 outlook was lowered to 1% from 1.1%- it will be interesting to see how these forecasts align with that of Alistair Darlings later.

In other news Greece’s sovereign debt rating has been downgraded from A- to BBB+; Moody’s warned the UK yesterday on curtailing its rising debt and again it will add more pressure for Darling to deliver today- rhetoric will not be enough. GBP/USD has so far had a rollercoaster 24 hours dropping as low as 1.6175 before recovering back to 1.63- expect volatility today as the markets try to digest what is on the table from the pre-budget report.

The USD has made broad gains across the markets as the downgrade of Greece and ongoing Dubai issues are leaning the market back to fear. An announcement from Mexico also will have added to this trend- they have taken out an insurance against Oil prices falling next year. The surge in Oil and commodity prices recently may have been hugely overcooked especially if fears of a double dip recession start to grow.

Discuss on this on the Currency Exchange Forum