October, 2010
Foreign Exchange - UK Daily Update - Friday, October 29, 2010 7:55 - 0 Comments
World First Morning Halloween Update 29th October: German Bond Plan Causes Euro Unease
httpvh://www.youtube.com/watch?v=19HtfjS-GKA
The dollar lost ground yesterday for the second session in a row as debates over the size of the upcoming QE package weakened US bond yields. The greenback was not helped either however by details of an International Monetary Fund paper on exchange rates.
The statement, published yesterday afternoon, stated that the yen, pound and euro were “broadly in line with fundamentals” but that the US dollar was “on the strong side” of fundamentals while the Chinese yuan was “fundamentally undervalued. The IMF obviously just love the word fundamental by the sounds of things.
This pushed GBPUSD back towards the 1.60 handle yesterday while EURUSD homed in on 1.40.
Overnight there has been 2 pieces of hairy news for the eurozone with both concerning the area’s major power, Germany. The first is a plan that would cause European bondholders to submit to a large haircut on their holdings in order to share the effects of the financial crisis. German plan that are working their way through the EU parliament would see investors leave Irish, Portuguese, Spanish and Greek debt in order to protect some semblance of their capital. Obviously this has the chance of backfiring by leaving those countries with no external funding at all. In the short term, the focus seems to be that, as Greek bailout plans stand at the moment, they would be left with a huge amount of debt anyway (150% of GDP) so why not let them default? There is some merit to the German plans but it would see a decent part of the eurozone slump further and raises the possibility of a two-tier EU or the complete break-up altogether.
The other was that German retail sales fell this morning by 2.3% to the lowest level since March 2008. The expected figure was for a 0.5% rise although we believe that German consumption will bounce back soon especially after recent unemployment figures showed that joblessness was at an 18 month low.
We’ve also had some poor, if not obvious, news from the UK overnight in the form of our consumer confidence measure. Consumers are worried about their own and the UK’s financial position going forward although the GFK consumer confidence number actually ticked higher to -19 against an expectation of -22.
We have a fairly busy day data-wise with US GDP due at 13.30 which is expected to show a figure of 2% vs Q2′s 1.7%. This is of course comes before the Mid-term elections, Fed, Bank of England and ECB meetings next week.
Have a great weekend.
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