The currency blog

A good start for sterling quickly turned sour as fear once again gripped the markets by the throat. A lack of action points on the Greece situation certainly did not help matters, however other factors also conspired to turn the markets away from risk. A big factor was the decision from the Chinese central bank (PBOC) that it was once again raising its reserve requirements by another 50 basis points. The decision to do this is to cool the rapid pace of credit growth in China which is unsustainable.
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EU leaders are meeting today in an attempt to lay the foundations for a deal to rescue Greece. Lots of speculation already touted this morning…there has been talk of IMF assistance and then IMF involvement without funding. Germany and France are widely expected to shoulder most of the responsibility in supporting Greece. The most recent feedback is that aid for Greece will depend on Athens meeting its deficit reduction targets this year- begs the question- what if they do not? Lots of fence sitting which is still leaning to reduced confidence in the markets and associated strength of the safe haven currencies such as the USD and the YEN. Expect more volatility as more news and feedback filters through.
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A good start for sterling soon lost momentum following the Bank of England inflation report and Mervyn Kings press conference. The markets and sterling were initially boosted following a report in Le Monde newspaper of a Germany led aid plan for Greece. The ECB did not comment on these reports but the rumour alone was enough to drive the markets higher with the USD shedding some of its recent gains along with the Yen- GBP/USD pushed through 1.5750 and GBP/EUR 1.1425. However the markets made a quick u-turn as party pooper Mervyn King dampened the mood with a dose of reality- the key blow was the affirmation that it is far too early to conclude that no more QE needed- this forced GBP/USD back to 1.5650 and GBP/EUR to 1.1350. Expect the “will they or wont they” that is the ECB assisting Greece to dominate the markets over the coming sessions.
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But it does look very likely that the pause in its recent decline is more to do with a degree of profit taking in other markets than a reversal of the currency’s fortunes. We did see both Euro and Sterling hit 8-month lows overnight as the Asian markets rushed to buy the perceived safe haven US Dollar but once again, proximity to support levels was enough to bounce both rates as Europe entered the fray. The concern for Euro bulls is that recovery attempts seem very limited in scope and small in magnitude. The rally for the single currency in the US last night was snuffed out by the combination of a late sell off in equities and an expectation that Bernanke’s testimony this evening could very well signal a more hawkish Federal Reserve outlook, with speculation that he might lay groundwork for a tightening of monetary policy.
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We have received a few photographs kindly taken by the caretaker at Hampstead Parochial Primary School, and have been given permission to display on our blog site.

Here is Santa (Jose) in his grotto!!

This is Oliver Elliott, aged 6 looking for treasure at ‘Treasure Lucky Dip’.

Barbara working hard at the ‘Face Painting’ station.

And Santa hard at work, giving out presents!

These are a great reminder of a lovely day, and hopefully one that we’ll all remember for a long time!

The Contagion effect within the EU as a result of the continuing crisis in Greece is getting more and more serious. Both Portugal and Spain are being affected by the fallout from the crisis in Greece with Italy deemed not a long way off the market’s radar. Comments emanating from participants following the close of the G7 Finance Ministers’ get together in Iqaluit, Canada at the weekend. The message was that there would be a “European” solution to the current problems and no requirement for an IMF bail-out, but that Greece would have a heavy price to pay for consistently breaking the EU’s self imposed rules. The German finance minister, Wolfgang Schaeuble, stated that he did not see the problem’s undermining the Euro going forward adding that ‘markets always tend to over-react’. Following this, the markets have continued to ‘over-react’ with euro/dollar erring on the soft side once more in early Far East trade. A slight recovery in Asian stock markets, following Wall Street’s 10 point closing gain on Friday, has added a small floor for the euro but it would be a brave trader to be the first one in selling Dollars in the present risk-averse climate.
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