Risk off continues apace

The Dollar continues to advance against the Pound and Euro this morning as the safe haven currencies benefit from the ongoing tensions on the Korean peninsular. A US aircraft carrier is on route to support the South Koreans in a spot of puffing the chest and attempting to look scary in a joint military exercise, with the Chinese also announcing they will look to work with the US to resolve the tensions. With all sides on edge, the Dollar and Swiss franc will continue to hold onto its gains in the coming days. The release of the Federal Reserve minutes last night passed largely as expected, with most members agreed that the benefits of further QE still outweigh the costs and that a monthly purchase scheme was the best option available. The Fed also discussed specific term rate targeting – a departure from the current duel mandate of inflation and employment – and the uber QE option if pursued. This will be worth following going forward since any change in the Feds mandate or stance will likely have large ramifications for the Dollar.

Ireland. That, in one word, is why the Euro continues to lose value against Sterling and the Dollar. After snaring its prey after what seems like one of the most drawn out pursuits in history, the market is now on the look out for its next victim. Portugal is currently in the crosshair, and will face almost certain death unless drastic fiscal action – which is not guaranteed to work – is implemented almost immediately. The real worry continues to be Spain which, if it were require EU cash, would almost certainly use up most if not all of the funds and probably need further money down the line. This story has much further to run and the big question is how will the Germans, who are bearing the brunt of the costs, react the a further wave of bail outs, and will this lead to political reforms in those countries led by Germany? Interesting times!

UK GDP was unchanged at 0.8% quarter on quarter this morning, with the annualised rate also unchanged at 2.8%. The market expected a revision downwards so an unchanged figure would, in normal market conditions, lend the Pound some strength. However, Sterling is being thrown around like a rag doll by the Dollar and Euro and with a raft of low key UK economic figures out today the theme of Strength against the Euro and weakness versus the Dollar is likely to continue.