Little change in range bound markets

Currencies Direct June 29th 2009 - 2 minute read

No major shifts in the markets as we maintain range trading across the board. Sterling has remained firm against the USD and has pushed up against the euro to 1.1780; surprising really as an article in the Telegraph noted that Britain’s national debt will quadruple according to Standard & Poor’s- that is unless drastic steps are taken. The ratings agency is predicting that public sector debt could hit post war levels of 200pc of economic output…this will turn huge attention to election pledges for the next parliamentary term- although rhetoric will not suffice and these pledges will need to be followed with hard action to maintain the AAA rating.

The USD is caught in no mans land as sentiment is helping the USD weaken and at the same time further comments from China that there will be no sudden change in China’s reserve policy helped it firm; this was more noticeable against the euro and the USD worked back from the 1.41 level to 1.40. Some very interesting stances on the USD in relation to forecasts are developing- it seems there is a real divide between USD strength and further weakness. The dollar bulls are looking at the US dollar to gain as a safe haven on a prolonged slowdown and if the economy turns the corner the US will be ahead of the curve and that will lead to USD strength. The dollar bears fear that suggested growth in the US is unfounded and high debt and low consumption will weaken the USD; also in this scenario a lack of confidence for the USD as a safe haven will no doubt heighten. The bulls are looking for EUR/USD to close the year at 1.50 and the bears 1.20 on EUR/USD.

Data released from Japan showed that industrial output increased by 5.9% in May compared to April; a good number which is the third rise in a row for Japan but still 30% lower than the previous year and there is a fear that this momentum could slip in the coming months.

Looking at the week ahead for the UK we have Gfk consumer confidence overnight and Nationwide house price data tomorrow morning followed by UK GDP for the first quarter. Other important data releases will focus on the ECB interest rate meeting on Thursday and unemployment data for the euro zone. For the US we have later in the week Average hourly earnings and non-farm payrolls and unemployment data. I feel the markets will maintain their range trading for the week ahead with sterling struggling to forge a move higher and market uncertainty keeping the USD from pushing over 1.66 against the pound and 1.41 on the euro.

In other news Bernard Madoff will learn his fate today following his shocking “ponzi” scheme which amounted to the worlds biggest financial fraud (that we know of) of $65 bn. He is arguing for a 12 year sentence, however his victims are pushing for 100 years…

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