Risk aversion took a brief hiatus in afternoon trading as equities continued a three day rally following stronger than expected retail sales figures from the US, and a better than expected downgrade result from GE. This saw the pound recover from early morning weakness and finally post some moderate gains against the dollar. Investors remain nervous about the effect that quantitative easing would have on the economy and this caused the Euro to continue its onslaught, breaking through to six week highs.

The euro was supported in part by comments made by the Swiss National Bank (SNB), which hinted at buying Euros in turn for selling francs, this helped the Euro to shrug off some less than impressive industrial production data from Germany, revealing the largest monthly decline since reunification.

The Swiss National Bank (SNB) cut interest rates by 25 basis points, but more importantly boldly announced plans to intervene in the currency markets to halt the franc’s appreciation. This sent the franc tumbling 2-3% immediately after the statement as hoped. The franc has been seen as a safe haven currency of late and has benefited from the recent increase in risk aversion, despite deteriorated economic fundamentals. This has not been helpful to the flagging export sector and has raised concerns of deflation, which is the motive behind the moves. The SNB also announced plans to adopt a quantitative easing approach to monetary policy, saying it would buy bonds.

Another safe haven favourite, the Yen, was also weaker as a direct result, as investors anticipate that the Japanese Central Bank may mimic Swiss plans to depreciate their currency in light of the recent rate of contraction from the export driven economy.

Data out today is from the US shows consumer confidence, as well as trade balance figures, while the Euro follows the US into revealing monthly retail sales figures. As always, equities and risk appetite will help pave the direction of Sterling for the day, so fingers crossed for a positive day for equity bourses if sterling is to make any advance north.   

As it is red nose day, and in light of the current economic situation, I thought I would leave you with the words of Oscar Wilde, “A pessimist is one who, when he has a choice of two evils, chooses both”

Further analysis is of course always available at our video blog http://uk.youtube.com/user/WorldFirstJC

Please feel free to contact me (rick.roache@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: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080. 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. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

To view any past or present currency blogs please click on the following link www.worldfirst.com/blog

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