Dollar makes an end-of-week surge
You don’t see much of sterling in the headlines these days. Maybe it’s the lack of outrageous award-ceremony outfits, or perhaps it’s just a bit run down and worn out by all the fiscal misery and bad weather of late. This was certainly the case last week and it was only the plight of the euro that kept sterling steady on Monday morning, as it waited with baited breath for BoE Governor Mervyn King’s two pennies-worth in Wednesday’s minutes. Whilst a rise in unemployment benefit claims kept sentiment shaky towards the pound, Wednesday’s policy meeting showed a unanimous vote to pause quantitative easing, which kept sterling firm against the euro on Thursday. Friday however, was a day for the dollar. The greenback took a bank holiday on the Monday, having ended the previous week looking fairly bullish against the majors. Further tightening of Chinese monetary policy was expected to slow the global recovery which led investors towards the safe-haven US currency. As Euro-Zone concerns waned, the dollar slumped slightly on Tuesday but picked up midweek in anticipation of PPI figures, unemployment claims and the Philadelphia Fed Manufacturing Index. The Federal Reserve then went and surprised everybody, including themselves, by raising a key interest rate which sent the dollar surging against the pound on Friday - which slumped to a nine month low against the greenback. The Federal Reserve statement said it would increase the discount rate it charges banks from 0.50% to 0.75%. This was a signal for further tightening and that the Fed Funds rate may well be next. So last, and probably least as well, the euro continues to thrash around violently in its sleep, troubled by nightmare’s about Greece, wondering whether or not the EU will sort it all out. Concerns lightened after reports out of Brussels suggested that European finance ministers may start playing hard-ball with Greece, possibly by stripping them of their EU voting powers and sending them to bed with a firm scolding and no supper. Greek unions called off a strike of tax collectors, farmers removed their barricades and a fearful silence filled the air. European finance ministers have given Greece a one-month reprieve (until March 16th) to show its deficit reduction plan was being rolled out effectively. The week ahead could be an interesting one, with some key data due for the UK including house prices, industrial orders and consumer confidence. Have a great week.