Has the market already got over the Obama Presidential victory? Any initial good feeling towards American assets was swiftly extinguished yesterday as market participants refocused themselves on the ailing economy; Yes We Can seems to have already changed to We’re Still In Trouble. Yesterday was the biggest post-election slump in the DJIA ever as investors locked in profits and headed for safety. The dollar retreated back into the 1.60s against sterling and into the 1.30s against 1.30s although that move has proved to be short-lived.

Sterling and euro will be in focus today as both central banks announce their latest interest rate policy. The ECB will continue to verge on the hawkish we believe and will only take their rates down to 3.25%; a cut of 0.5%. The Bank of England is a much harder prospect to call with predictions varying from 50bps to 150bps and good arguments on both sides of the issue. A 50bps cut would seem sensible but may not be enough to lubricate the lending machine to a substantial degree whereas if they do cut by 100bps then we would have to argue that while we may not see a positive effect in the ‘real’ economy for 9-12 months why are using up the main weapon in our arsenal and heading towards a zero rate policy?  In any case we are predicting that Mervyn King and the MPC err on the side of prudence and cut by 50bps; dance with the girl that brought you as it were.

Other data today includes US initial jobless claims which we believe will continue to expand in keeping with our belief that the US economy will be in recession for the entire of 2009. Commodity currencies may also fall under pressure as the mining sector becomes more and more stretched. This was typified by ArcelorMittal’s decision to slash production in the face of weakening demand. Its share price slid 21.5%.

Please feel free to contact me (jeremy,cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

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Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

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