It's been a quiet week thus far albeit with a fair bit of volatility in a tight range.
The dust took a long time to settle last week and we saw a really scrappy market as dealers tried to make sense of a plethora of data which while generally favouring the Euro was inconclusive.
Nothing's really changed this week as all eyes have been on tonight's decision from the US Federal Reserve. Whilst they are not expected to change rates from the current level of 2% they are expected to speak hawkishly about inflation and the possibility of being able to raise rates later in the year as the economy bottoms out. Housing and Manufacturing data released today suggests that this may stiil be some way off but there are those out there, me included that favour the Dollar to turn back up before the year is out.
The Pound had its rally to 1.2740 against the Euro which I told you to sell into and it has since dropped to 1.2610. Yesterday's UK mortgage approvals data was the weakest in over 10 years and tells us that the housing market has some way to drop yet.
The problems of stagflation which I first wrote about last Autumn are going to rear their ugly head more and more as the year progresses. The consumer-led economy needs a boost and the BOE needs to look at that as equally as the dangers of accelerating inflation.Otherwise UK plc will plunge ever deeper into the mire.
I have been bearish for the Pound for over 18 months and I see no reason to change my mind now. Whilst most commentators have lately come to understand the predicament we are in I still see too many rose-tinted beer-goggles ( to mix a metaphor or two ). The worst, I fear, really is yet to come and no amount of peacock-suiting by Messers ( sic ) Brown and Darling is going to change that.
Mike
Mike Paterson is a former senior interbank trader with UBS and Credit Suisse and has been involved in the FX market for over 28 years. He now runs his own consultancy advising private and corporate clients on best execution of currency requirements. Mike also presents at a wide range of events and runs currency workshops.
For further information please contact him at :
MSP Foreign Exchange Services
Office: + 44 ( 0 ) 1732 700383
Mob: + 44 ( 0 ) 7887 581696
Email: mspfx@tiscali.co.uk
