The currency blog

….. following China’s decision to increase their required reserve ratio (RRR) for its commercial banks by 0.50%, thus obliging said financial institutions to hold onto more of their deposits as reserves thus in a flash squeezing credit available to the country’s already rampant economy. For China, the threat of inflation is now a reality rather than an assumed likelihood (as presently in other major economies), stemming from the stimulus measures that were introduced over the last year. To this end, China’s move was making good its promise to ensure that inflation wouldn’t get a grip and that the threat of asset bubbles would be dissipated. Moves in the RRR by the People’s Bank of China have always been the favoured method by which the Central Bank has adjusted monetary policy, preferring this to the more popular process in the West of tinkering with interest rates. Read the rest of this entry »

Yesterday we saw a bout of USD selling pushing EUR/USD back to 1.45 and supporting the pound in a run up towards 1.62. This ran out of steam in later trading as the markets became range bound with this pattern continuing so far today. Data from the UK today showed a reduction in the trade deficit and overnight we saw BRC retail sales come in at +4.2% year on year; both data better than forecasts. However it was not all good news for the UK as RICS December house price balance came in at +30 from +35 in November- the expectation was for +36 and this was the first drop since Feb last year. Read the rest of this entry »

A combination of factors has caused a weaker USD this morning. Firstly the market is reacting to the disappointing US non-farm payroll data on Friday; the expectation was for a positive number at +10,000, however the actual came in at -85,000 for the month of December. This data after volatile markets led to a weaker USD. This morning the pound and the euro have gained further against the greenback with sterling heading towards 1.62 and the euro pushing back over 1.45. The weekend release of December Chinese trade data which came in above expectations is helping lift risk sentiment in the markets. Chinese exports rose 17.7% in December helping to reinforce confidence in the global recovery and lifting FX risk flows. Read the rest of this entry »

Sterling has finished the week as it started in a positive tone; the pound has pushed through 1.60 against the USD and towards 1.12 against the Euro. The gains are largely due to the feeling that the Bank of England will end the Quantitative Easing programme in next months MPC meeting. The general sentiment is that UK GDP will come in positively at the end of this month and this will lean the Bank Of England to pull the plug on the life support for the UK economy. On top of this sterling has gained on the back of the latest opinion poll from the Sun which emphasizes an extended lead for the Conservatives after the failed coup to oust Brown. This is significant as it decreases the possibility of a hung parliament which would be sterling negative due to the lack of a majority to clearly define fiscal objectives. Expect more sentiment shifts before the Feb MPC meeting which will be significant; yesterday as expected there were no surprises in the MPC meeting for the UK with the interest rate and QE held.
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…. between the Yen and Sterling. Both currencies are being seriously undermined by both political and economic concerns and are running neck and neck towards the edge of the precipice. On the political front, the replacement of Fujii by Kan as Finance Minister was not greeted enthusiastically and as mentioned yesterday the Yen took a little dip in value. The major concern, was that the Japanese bond market might take flight and the ability of the Ministry of Finance to satisfy the country’s massive debt mountain could become compromised. Added to this, the first official comments from Kan were distinctly Yen negative with him saying he wants the Yen to weaken further (fell immediately from 91.10 to 91.75) and then adding that many Japanese firms favour the $/Yen rate at 95.00 and that he must work with the Bank of Japan to bring the Yen to appropriate levels. Beat that lot, sterling …. Well it did its best.
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