International Trading


The euro weakened yesterday against the USD and GBP moving to 4 week lows as investors shunned the single currency.
The belief that the recovery in the EU would come around sooner than had originally planned has caused the EUR to find some backbone in recent month; a backbone that has been hardened by some strong data. This has not lasted however and ECB member Weber’s comments on which we spoke of yesterday obviously still resonated with market participants.
Pound watchers were also treated to a bit of volatility as the market seized on 2 newspaper articles. The first detailed research conducted by a think tank saying that ‘interest rates could hit 8%’ in the near future. Silly season is still going strong obviously.
Firstly, this is based on a CPI reading of 10%! It’s 3% at the moment, what do they expect to happen? Secondly, don’t panic. It’s not going to happen, should it do so I will be eating a lot of hats (which I guess will only see inflation rise further!). This research seems to be based on the belief that the MPC are going to increase money supply via further quantitative easing thus increasing inflation. I am happy to say this won’t happen.
The MPC have been in the news overnight as an interview with the newest member of the Bank of England’s rate setting committee has caused GBP to lose a heap overnight. Martin Weale said it is impossible to rule out the possibility of a double dip recession in the UK while the bank’s growth prospects, 2.8% in 2011 and 3.2% in 2012, may be slightly overoptimistic. It is obvious from these comments that Dr Weale is joining in the dovish side of the decisions camp and as a result the prospect of near term rate rises in the UK have been marked downwards.
A quote from EU commissioner Olli Rehn has also had traders busy overnight. The former Finnish parliamentarian noted on an interview on Bloomberg that a slowdown in Asia would seriously affect the recovery in the EU.
GBPUSD and EURUSD (as well as the DAX, S&P and DJIA) have broken through important psychological resistance levels overnight and the belief is that this move will continue lower. The data calendar is quiet today with US existing home sales at 15.00 but it will be the market’s fear of risk that will drive things today.

Latest Exchange Rates At Time Of Writing