The currency blog

Another expectation beating employment report from the US on Friday has the markets in buoyant mood this morning. The headline number was 227K jobs created in February against a forecast of 210K, with strong upward revisions to both December and January numbers. This marks the third straight month of strong jobs growth with gains spread across different sectors of the economy. One negative was that construction jobs showed flat growth for the first time in a couple of months. Interestingly we have again seen the Dollar strengthen on the back of positive US developments, which flies in the face of the risk-on, risk-off paradigm that has dominated FX trading in the US Dollar over the last few years. Commodity currencies initially surged on the news but have cooled off as we start the week.

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EU officials are desperately trying to convince private holders of Greek bonds to accept a crucial debt swap deal ahead of today’s deadline. In order for Greece to receive a second bailout it will need at least two thirds of bondholders to take a 53.5% cut in the value of their holdings and the deal is considered essential in Greece’s attempt to avoid a default. According to the Institute of Finance yesterday just under 40% of the bond holders had agreed to the new deal leading to a nervy countdown at 8pm GMT deadline later today. If the total number of bond holders reach the required 66% (approx €150bn) agree to the swap, the government can force the other bond holders to take the haircut too. Remarkably the Euro remains relatively resilient in the face a Greek default up slightly against the Greenback reaching 1.3217.

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Greek Politicians are applying increasing amounts of pressure to bond holders in a last ditch attempt to obtain the necessary 75 per cent to agree to the terms of the looming bond swap tomorrow.  The Hellenic Republic is threatening to invoke Collective Action Clauses (CACs), agreed by Greek politicians last month, to force through the deal which if used would almost certainly constitute the first sovereign default in Eurozone history. Any default would trigger credit default swaps on the bonds, a type of insurance that could lead to be very lucrative to those investors refusing to participate in the deal but might also lead to renewed uncertainty in the market. CDS contracts are traded over the counter and are fairly opaque in nature and it is unclear exactly how many contracts might be triggered and who might be on the other (losing) side of the bet. The uncertainty is naturally translating into risk-off, with equity markets declining along with the Risk-on currencies such as the Euro and Sterling. The US is once again the big winner, rising across the board over the last few days on a run that can be expected to continue until full details of the bond swap are announced.

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Sentiment remains the primary driver of the Euro, the single currency sold off sharply in afternoon trading yesterday after Eurozone members decided to delay more than half of the €130bn Greek bail-out funds.  A decision that was supposed to put to bed the Greek issue, at least for a couple of months, has managed to calm volatile markets for less than two weeks. Thirty eight different measures need to be implemented by the Greek government before the remaining €71.5bn is handed over. This may be as early as next week. But slicing the payment in two allows hardliners in the Netherlands and Germany a foot in the door and the potential for further delays. It is this uncertainty which is hurting Euro sentiment and pushing the Sterling pair back towards the 1.20 level.

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Well it seems like we have left winter behind us as March has started with above average temperatures and sunshine in the capital! Through our dress down contributions over the past two months we have raised £321.55 which has pushed the co-operative wall total up to £10 957, just shy of the milestone £11 000 mark.

So how much does that mean for each of the charities:

Neuro Foundation - £100.19
The Wooden Spoon - £98.58
Barnardo’s - £122.78

Over March, Easter and April we will be supporting:

Oxfam - in support of Jarrad Hubble’s London Marathon entry
Great North Air Ambulance
Daneford Trust

You can also sponsor Jarrad Hubble directly on the following link http://uk.virginmoneygiving.com/fundraiser-web/fundraiser/showFundraiserProfilePage.action?userUrl=JarradHubble

As always, thank you for reading!

The release of US GDP for the 4^th quarter of 2011 led traders to gamble on the strong American recovery ruling out any further monetary stimulus from the Federal Reserve. The figure came in at 3.0%, beating expectations of 2.8% leading to weakness in the US Dollar. This move happened despite no QE3 meaning the Greenback wouldn’t lose any of its underlying value. The US Dollar is viewed as the global safe haven so the positive comments and figures improved sentiment and encouraged investors to put their money into riskier assets. Gold, which is traded as the other main safe place to invest in troubled times plummeted five per cent off the back of this news. The Fed expects the economy “will expand at or somewhat above the pace registered in the second half of last year”. Read the rest of this entry »