Nice One Mervyn ……

Currencies Direct October 22nd 2008 - 3 minute read

Nice One Mervyn ……

… And there was Sterling looking a little smug against the background of the stronger Dollar. Mr King’s speech to an audience of business-men in Leeds was downbeat in the extreme and the fact that he has always been dismissive of the academic definition of a recession, makes the content of his presentation even more worrying for the market and goes some way to explaining the reaction overnight. The up-side for business and mortgage holders is that he underlined the dangers of an undershoot of the 2% inflation target and opened up the prospect of immediate rate cuts. Global interest rate differentials are therefore becoming much less prevalent as is evidenced by the surge of buying interest in the Yen, whose zero interest rates policy has recently been a mill stone for the currency.

Any bounce in cable is likely to come on the back of buying in Euro/$ and judging by the comments on the screens this morning, any move higher will be met by a further wave of selling. So the outlook for today looks grim for both Euro and GBP.

Commodity prices have also fallen after yesterday’s short reprieve. Both gold and crude oil encountered a degree of bounce yesterday – gold on safe haven buying and oil on the settlement of the November futures contract. This morning both have resumed their lack-lustre trading pattern with oil especially vulnerable on over-supply concerns. This, outweighing the prospects of a more aggressive production stance from OPEC following Friday’s get together.

No major US data releases today and little from the Eurozone. This leaves the release of the minutes from the BoE meeting as the focus.These will be released at 9.30am today will show that its monetary policy committee (MPC) was unanimously in favour of the emergency decision two weeks ago to cut rates by half a percentage point. It would be a real surprise, given the concerted global nature of the rate cuts if any member of the committee dissented from the BoE directive. MPC members have made few public comments since the October rate decision, however, Andrew Sentence, regarded by many as the most hawkish of the MPC committee, warned last week that the chances of a severe UK downturn had increased.

After the 8th October joint action with other major central banks, the BoE said there was a growing risk that UK inflation would undershoot its 2 percent target over the medium term (18 – 24 months), and economists will be closely eyeing the report for clues on how fast the BoE will cut rates to help the slowing economy.

Since the last meeting, the UK economic outlook has worsened and the Confederation of British Industry (CBI) reported yesterday that manufacturers’ optimism was at its lowest level since 1980, with numerous forecasters predicting that the British economy is heading for, if not already in, a potentially prolonged period of ‘sub-par growth’ … that’s a recession to you and I.

From the US yesterday, the Federal Reserves significantly added a further vehicle for injecting funds directly into the economy. Bernanke is doing his best from a monetary angle; what he desperately wants is for Congress to act on the Fiscal side. No hope of that for some time yet me thinks. There was also complete silence on anything related to the Lehmans CDS settlement yesterday. Whether you view this as a ‘glass half full scenario’ or ‘glass half empty scenario’ is up to the individual.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Written by
Currencies Direct

Select a topic: