Sterling & Currency info 17/03/08

During last weeks trading the following currency pairs performed as below:
£/USD + 0.8% £/NZD - 1.9% £/€ - 0.9% £/AUD - 0.6% £/CAD + 0.3% £/ZAR - 0.4%

Week Ahead
Below shows some key data releases for the week ahead and the possible implications:
18/03/08 – 08:30 (UK) Consumer Price Index - The CPI released by the Office of National Statistics is a measure of price movements showing the comparison between the retail prices of a representative shopping basket of goods and services. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive for the GBP, while a low reading is seen as negative.

18/03/08 – 08:30 (UK) Retail Price Index – The Retail Price Index is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is widely considered as a key measure of inflation that indicates an accurate reflection of the cost of living. A high reading is seen as positive for the GBP, whereas a low reading is seen as negative.

18/03/08 – 19:15 (US) FED Interest Rate Decision – It is expected that the FED will cut their base rate by up to 75 basis points, with some even anticipating as much as a 100 point cut. This may have already been priced into the market (hence why the USD has weakened some what in the past 2 weeks trading). Should the rate cut not be as strong as anticipated we could see some support for the dollar as the markets have over valued £/USD.

19/03/08 – 08:30 (UK) Bank of England Minutes - The minutes give a full account of the policy discussion from the last interest rate decision held on the 6/3/08 - including differences of view. They also record the votes of the individual members of the Committee. If the BoE shows a negative stance about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the GBP – however if the reverse is seen, and future interest rate cuts anticipated, this will be negative for GBP.

With so much key data released in the coming week I would suggest keeping in close contact with your account manager – the more risk averse may even wish to secure their currency before one of the key data releases has an opportunity to make your requirement more expensive!

Friday’s Trading
Sterling eased in early mornings trading against the USD. This week the dollar has fallen sharply across the board on waves of selling spurred by the view recent Federal Reserve actions to boost liquidity in the money markets will not work.

"Sterling is really reflecting what's going on with the dollar. It's made up a little ground today but the flow of bad news out of the U.S. is likely to weigh further," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

Sterling’s early losses were soon reversed by close of trading after reports filtered through that JPMorgan Chase & Co and the Federal Reserve Bank of New York on Friday agreed to provide emergency financing to Bear Stearns, after the investment bank said its cash position had deteriorated sharply. By close of trading Bear Stearns share price had fallen a staggering 40%, with one investor, British tycoon Joe Lewis, losing a reported $800m alone. This pushed £/USD to 3 month highs.

"Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations," said Bear Stearns Chief Executive Alan Schwartz.

Michael Klawitter, currency strategist at Dresdner Kleinwort added "The situation is very much that Bear Stearns was very close to the edge and it was much worse than we all thought, It raises severe concerns over other banks. (Bear Stearns) wasn't a small bank, it was the second largest underwriter of mortgages last year. For the situation to deteriorate in that way is not good news and it will add further to jitters,"

This news will not be good for the financial markets and may add further weight to an already very unstable situation.

With current conditions very unstable and further losses due to be reported from other major banks Goldman Sachs and Lehman Brothers this week (expected losses of $3bn and $1bn respectively) the outlook remains very unclear. Contact FCD to take advantage of one of the many currency tools at our disposal and safeguard your requirement.

For more information or assistance with any upcoming trading requirements please contact djw@currencies.co.uk