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All change! Risk is back on the menu. Currency report Sept 19

By • Sep 20th, 2011 • Category: Currency

The Coracle Online Currency podcast for Sept 19, 2011 in association with Crossbar fx

Significant items this week:

Tues 20th September EU – German – ZEW economic sentiment.
US – Housing Starts and Building Permits, FOMC meeting commences

Wed 21st September UK – Public Sector Borrowing
US – FOMC meeting concludes

Thurs 22nd September US – House Prices

Thank you for downloading the foreign exchange market report podcast from Coracle Online and Crossbar fx for September 19th 2011.

“All change, all change”, risk is now back on and all the reasons for getting out of risky assets last week have evaporated!
….well not quite…
they are in fact all still there, but as a result of the world’s Central Banks deciding to pump extra liquidity into the European banking system, the havens of gold and core government bonds saw a sell off and equity markets had their best week in 3 months.
The statement given jointly by Germany and France that Greece would remain in the Eurozone meant that the Euro recovered from a 7 month low against the US Dollar. As the fears that Greece would default lessened, a platform was provided which led to the Fed, the Bank Of England, the Bank Of Japan and the Swiss National Bank lending Eurozone banks Dollars for 3months to ensure they had sufficient funding. A sigh of relief indeed, as once again the world’s financial markets walk the debt default tightrope; but none of these measures are the silver bullet for European debt concerns. The fundamentals remain; the can has just been kicked a little further down the road. So, volatility remains and Central Bank statements move the markets in ways they could never have imagined. Meanwhile the US economy is deemed to be slow and weak, but at least still positive for the time being.

In the UK, poor economic data releases last week have raised the question for further quantitative easing from the Bank of England. Inflation has risen to 4.5% in August, and CPI to 5.2%, from 5%. Unemployment also rose to 2.51 million, a rise of 80,000 in the 3 months to July: that was the largest increase in nearly 2 years. What will QE2 deliver for Sterling? Most banks are betting on sterling weakness again… but QE2 is required first…. and not until it’s announced and the conditions digested will the banks show their hand. Remembering also that these are the same banks who were betting on USD weakness as their economy stalls. There are lots of “ifs and buts”, making the short periods of British Pound strength worth keeping an eye out for.

Thanks for listening