We start the day with signs of resilience against both the US Dollar and the euro, with the pound sticking close to recent ranges but recovering from the lows seen earlier this week. With little in the way of any key data yesterday the move was very much a technical correction, and may well be a temporary respite.
The Pound rose overnight to 1.6335 versus the Dollar with a slight move in favour against the Euro, after touching the weakest level we have seen in nearly 8 weeks. The impact that the expansion of the quantitative easing programme has had on the UK markets has been clear to see over the last fortnight, however there were signs yesterday that we may have seen the end of the adverse reaction that has steeped pressure on the Pound over recent trading days.
Caution would still be the buzz word regarding any immediate thoughts that this is the end to the Pound’s decline. The ‘Green Shoots of Recovery’, seemingly a phrase conjured up by the Bank of England and Federal Reserve to sweeten the blow of things to come certainly haven’t blossomed into anything worth believing in yet. This is highlighted following the Consumer Debt report earlier this week that showed borrowers repaid debt by the most on record in July (good!) only to have National Debt increased to the tune of £50 Billion by increased quantitative easing in August (bad!).
Alistair Darling has stated that he will plead with other G20 nations to continue spending to ensure that the global economy returns to sustainable growth next year. In an interview with the Independent, he said that “the biggest single risk to recovery is that people think the job is done.” In a refreshingly frank interview he went on to say that, “there is a real risk that either governments or people generally think, ‘We have done that, we are on the path to recovery’.”
Darling will come up against resistance on his plans at the G20 summit this weekend when France and Germany highlight the excessive bank bonus culture, with observers saying that consensus will be hard to reach.
Markets remain in a cautious mood with Wall Street closing down for the fourth consecutive day as investors were unnerved by weaker then expected ADP employment report for August. Factory orders rose for the fourth straight month in July but again the results were below expectations. As a result, fresh clouds hang over the financial markets in the run up to tomorrow’s Non-Farm Payrolls data.
The minutes of the last Federal Reserve Meeting stated that the risks in place that were adverse to the economy have eased “considerably”. At the same time, however, it worries about the prospect of weak growth ahead and thus shows no signs of exiting its extremely accommodative policy stance.
T he European Central Bank meets today at 12.45PM with rates expected to be left on hold at 1%. As always however, markets will closely watch the press conference following the announcement later in the afternoon, which will outline the details of the central bank’s latest growth and inflation forecasts.
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