The currency blog

Yesterdays US consumer confidence data came in weaker than expected and highlights the delicate recovery phase for the US economy. This also backs up recent dovish comments from the Fed asserting that interest rates will need to remain low for a prolonged period and that liquidity withdrawal may not be a foregone conclusion. The data helped to spook the markets and strengthened the natural safe havens of the JPY and USD. The Yen was also lifted on good export data pushing GBP/JPY back below 140.00 and USD/JPY down to 90.00. At the moment for recovery we have an east and west divide with robust recovery coming from China, Malaysia, Honk Kong contrasting the jitters in Europe, the UK and the US. The tide has shifted.

The Greece debacle is still ongoing and Fitch downgraded the 4 largest banks to BBB with a negative outlook to boot. The situation was not helped by a German Lawmaker of the ruling conservative party commenting that Germany must ensure that it does not pay for Greece as it could trigger the demand for more aid. In addition the Czech finance minister said that the Greek pledge to cut the deficit to 3% in 3 years is “nonsense” in his view. No beating around the bush there!

Sterling remains subdued after yesterdays dovish sentiments from the MPC. This was again reiterated in case the markets did not get the message by Mr Posen today who opined that we will keep the door open for more QE- “if we have to we will”. Don’t expect any big moves for sterling today. The tone of the MPC, the deficit and the election is leaving Sterling stuck in the mud at the moment with more rain forecast.

Today we have Ben Bernanke’s testimony to congress on monetary policy- it will be interesting to judge his tone going forward and his feedback as regards the hike in the discount rate.

Discuss on this on the Currency Exchange Forum