The trend is for further Sterling weakness | Smart Daily Currency Note

Sterling

The currency markets at the moment are highly volatile but to describe the current state of play as a “currency war” is probably too emotive but that is the phrase that is being used in news headlines. The aim of the “currency war” is to debase your currency so that as it weakens it boosts exports and therefore economic activity at home. If that is the aim of the Cameron government they are doing a good job as Sterling lost ground against both the Euro and the US dollar yesterday. Over the last week we have seen Sterling gain nearly four cents against the Euro and yesterday lose nearly 2 cents. The trend though is very much in favour of Sterling weakness against the Euro. Yesterday Sterling suffered as a report announced that business confidence in the UK had hit a record low. Today we have the release of Consumer Price Inflation. Expectations are for no movement from last month with a rate of 2.7%, still way above the target rate of 2%, and it is very unlikely we will hit this target rate any time soon. As highlighted, volatility continues to be high, so call in now to get the latest rates and minimise your risks.

Euro

The Euro benefitted from being talked up by the head of the German Bundesbank who stated that he didn’t think the Euro was significantly overvalued and that the European Central Bank was unlikely to reduce interest rates. This will have annoyed the French who stated the contrary last week and increase the pain for those southern states of the Euro zone who need to see their economies benefit from increasing exports. Not much news out of the Euro zone today but we do have the G20 meeting this weekend so it will interesting to see what other Euro zone political pronouncements we have in the build-up. Yields on the government bonds of the southern states continue to increase. Still way below critical levels but a worry none the less. Call in now for the latest rates.

US dollar

The US has been on the side lines for the last few days being influenced by events elsewhere. It continues to be quiet on the data front today so again influences will come from elsewhere. Tomorrow we have retail sales data with expectations for a fall in January. Call in now to see how the US dollar is moving as events unfold elsewhere.

Worldwide

The main news elsewhere still centres on the Yen which continued to weaken even though the Japanese finance minister tried to talk it up by saying that it had weakened too quickly. With the G20 meeting coming up and a key item on the agenda will be the “currency wars”, it will interesting to see if the Yen can stem its losses before that meeting. The real problem is that markets know the Japanese intent is to weaken the Yen and therefore it is very difficult to reverse as investors will not want to invest in the Yen in the short to medium term.