Snapshot:
GBP vs EUR -0.05%GBP vs USD +0.10%
With no UK or European data releases on the calendar yesterday, all eyes were on the US markets and most importantly their response to the injection of liquidity that the Fed added on Tuesday in the form of a US$200 billion new liquidity tool. The pound made strong early gains against most major currencies, although by close of business we were back to square one. We were even taking minor losses against the euro by close of business.
Dollar Plunges
It was however a dismal day for the US dollar as the euphoria over the Fed’s cash injection into the banking system faded in what has been described as the cash injection hangover.The dollar plunged to new lows as oil spiked to a new high of $110 a barrel, doubts grew over America's latest attempt to avoid recession and a fund owned by Carlyle, the US private equity giant, headed for liquidation on $16 billion of unpaid debt.US retail sales also fell by a worse than expected 0.6% last month against expectations of a 0.2% gain.
One trader commented "There is more bad news to come. They (the Fed) are trying to do all they can but it's like standing in front of a moving freight train, you're just going to get mowed down. Even the Fed aren't big enough to prop this up now."
For anyone considering buying dollars at the moment the pound continued to make positive gains yesterday probably taking advantage of the growing sense that the Federal Reserve's surprise $280 billion liquidity bailout will fail to stop a full-blown recession. We have pushed to those attractive highs not seen for a few months now and once again we are trading at exceptionally good prices against this currency.
FTSE Takes Losses
Global stock markets also dived yesterday following the gloom, record oil prices and interestingly a sudden surge in gold prices which hit the $1,000 an ounce for the first time as concerned investors sought out safer assets.The FTSE also slid more than 2 percent at one stage as investors continued to worry about the possibility of a recession.
Inflation Expectations Hit record High
A survey by the Bank of England released yesterday showed that Britons' expectations of future inflation rose to a high of 3.3 percent in February, more than a percentage point above the actual rate of inflation. At 3.3 percent, inflation expectations are at their highest since the survey began in November 1999.
The survey also showed people's perception of the current rate of inflation leapt to a record 3.9 percent from 3.2 percent in November.All in all these are uncertain times with the cost of living rising, investors becoming very nervous and the currency markets in a state of extremely volatility. Stay in contact with your account manager as you are likely to see spikes in the markets whether you are a buyer or a seller. Later today sees European inflation figures (CPI) and data from the labour market both out at 10:00 and both key. Later this afternoon sees US inflation data for February out at 12:30 also key.
For more information or assistance with any trading requirements please contact djw@currencies.co.uk
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