The currency blog

Mr Market continues to be driven almost exclusively by extreme changes in sentiment on a day to day basis. The recent Euro rally stems from the positive outcome of Spanish and Italian bond auctions yesterday. Both countries we able to place the bonds at considerably lower rates than in recent auctions lifting sentiment and the Euro throughout yesterday and into this mornings trading. Worryingly data just out showed Spanish Banks borrowing almost €140bn from the ECB in December, almost the record high set back in July 2011 and this tugged sentiment back in the negative direction. Read the rest of this entry »

Europe will remain under the spot light over the next couple of days with the European Central Bank (ECB) meeting today, alongside debt auctions in Spain and Italy. The speculative market is predominantly short EUR while policy makers, specifically German Chancellor Merkel and French President Sarkozy are making the right noises; it appears the penny has dropped for Eurozone officials that it is not only about austerity but also about growth and reform. Read the rest of this entry »

The volatility that ended 2011 has yet to return the markets with Sterling, Euro and the US Dollar all remaining relatively stable against each other. This may start to change with tomorrow’s central bank interest rates announcements. Both the Bank of England and European Central Bank are expected to keep rates unchanged at 0.5% and 1% respectively, but the press conference with the newly appointed chief of the ECB, Mario Draghi will be closely monitored. Any comments about the economic conditions and the ongoing debt crisis in the Eurozone will have a large impact on where the markets move next so no pressure Mr Draghi!

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The British economy is expected to stagnate in the first half of the year according to the British Chamber of Commerce (BCC), with at least one quarter of negative growth expected. A technical recession, two consecutive quarters of negative growth is still a distinct possibility and the BCC warn the UK economy is still in a precarious position. The government needs to make important decisions and actually act on them to maintain confidence and investment levels, which as promised in the Chancellors autumn statement included improving the flow of credit to businesses and infrastructure projects. Although we are about to see another high speed rail line announced today, the BCC warning is timely, and will hopefully persuade the government that expansionary austerity is not delivering the results that the OBR and Chancellor were hoping for.

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Friday afternoon saw the US economy post 200,000 new jobs in December, making that the sixth consecutive positive month according to official figures. This came much higher than the anticipated 150,000 jobs and reduces the overall unemployment rate down from 8.7% to 8.5%. The main areas of job growth were seen in retail, manufacturing, transportation and warehousing and healthcare. The news did not help the Euro’s cause as it continued its decline against the Greenback falling below under 1.27 for the first time since autumn 2010. US markets also struggled with the Dow Jones and S&P 500 indexes both closed lower as they remain concerned over the eurozone debt crisis. The report did however provide some political collateral for the Obama Administration during an election year and said the US economy was “moving in the right direction”.

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A fresh wave of anxiety swept the markets caused by doubts over capital-raising plans and Hungary’s solvency. This led to investors selling shares in the continent’s major lenders. Italy’s biggest bank, UniCredit saw its share price fall by over 17% after it announced a heavily discounted rights issue, which valued stock at less than a third of it current price. Over in Hungary, the yield on 10 year bonds soared to over 10% after the government failed to find enough buyers for the 45bn forints (£116m) of sovereign bonds it was trying to sell. This combination of weakness in the Eurozone led to the single currency dropping to 15 month lows against Sterling.

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