The UK Consumer Price Index for September has remained unchanged at 3.1%, but the broader Retail Price Index, which includes a component due to housing costs, has fallen to 4.6% from 4.7% in August. The UK target for inflation is 2%, but that value was set before the global financial crisis struck. Analysts believe that inflationary pressure will subside, but that any measures to bring it under control – usually by raising the Bank of England interest rate – could harm the recovery. In historic terms, an inflation rate of 3% is a low and affordable level for the UK. The priority must remain ensuring that public debt is reduced and economic growth is attained such that unemployment levels will start to decline.
Pound Sterling – UK Markets
Sterling has been regaining some ground lost against the Euro over the past 24 hours, closing 0.1% higher yesterday at €1.1437. The trend has reversed in early morning trading today and at 07:30 GMT this morning; £1 was worth €1.1361.
Data released for the UK trade deficit shows that it has narrowed (coming off a five-year high) slightly; down to £4.6 billion from the August figure of £5 billion for goods and services The figures were given a cool reception by analysts who described them as “lacklustre”.
US Dollar – US Markets
The decline of the US Dollar against the Yen, is continuing, albeit with a degree more volatility. The Dollar has strengthened marginally against both Sterling and the Euro over the past 24 hours, but is trading lower against both currencies in early trading today.
The Federal Open Market Committee (FOMC) minutes, released yesterday, show that the US Federal Reserve is ready to carry out further stimulus measures “before long”. This may come in the form of further purchases of government debt. The committee did not believe that the US would return to recession.
Euro – European Markets
The recent performance of Greek government bonds is an indicator of rising market confidence that Greece can manage her finances. The yields (interest being paid) on Greek 10 year bonds have fallen by 1.5% (from 10.4 to 8.9%) The premiums on shorter term bonds have also fallen – this means that it is cheaper for Greece to service her debts since she has to pay less interest to encourage investors to take up the issue.
This positive indicator in conjunction with some shaky GBP figures is making now an attractive time for clients selling Euros and Buying Sterling.
Other Currencies – Highlights
China’s trade surplus has diminished according to recent data, but it remains at a very healthy $16.9 billion. The figure marks a retreat from August’s figure of $20 billion, but it will do little to stifle the glamour on either side of the Atlantic which is demanding an appreciation of the Chinese Yuan, to what the Europeans and Americans would regard as a market rate.
In a move that could be described as “the pot calling the kettle black”, the Japanese authorities criticised recent interventions by South Korea to halt the appreciation of the Won. Both sides have styled there own actions as being designed to “calm volatility” and vilified the other’s as naked currency manipulation.
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