Trick or Treat Mr. Murdoch

Titanic battles appear to be taking centre stage all over the world at present. In the US it is the Democrats versus the Republicans as President Barack Obama continues his efforts to raise the debt ceiling. The Eurozone is preparing itself for the mammoth task that is the second Greek bailout package. And finally, a story that has covered the front pages of all the major newspapers today, Rupert Murdoch battled MP’s in parliament yesterday. However, his wife stole the headlines for her ‘kung fu chop’ on the petulant foam pie chucker. The effect of this on the currency markets was negligible but my gosh did it make for good reading!

Pound Sterling – UK Markets

The Sterling market has reacted prior to the release of the minutes from the Bank of England’s July Policy meeting, when policy makers decided to keep interest rates at the record low of 0.5 percent. After touching a near 6-week high versus the euro, our currency has retreated. We expect that very few policy makers will have voted for a rate raise as we continue to feel the pinch of spending cuts coupled with snail paced growth. Views in the market suggest that there will be a “shift toward the dovish camp in the monetary policy committee”.

US Dollar – US Markets

President Obama has served up some words of confidence stating that showdown talks have made good ‘progress’ as the debt deadline nears. The plan that has been forward has been suggested to include a mixture of government spending cuts and tax hikes for wealthier Americans. The aim of which would be to share the sacrifice of the financial burden. The so called “Gang of Six” senators tabled a plan to cut $3.7 trillion from the government deficit over 10 years. This would include an immediate $500 billion reduction. Whilst this is not an outright conclusion to the ongoing crisis, Obama praised the proposal as a “very significant step” towards the overall aim. Expect high levels of volatility over the coming days in the markets.

Euro – European Markets

As talks continue over a second Greek bailout package, German Chancellor Angela Merkel has thrown a gigantic spanner in the works openly stating that she doubts Thursday’s summit will resolve the crisis. In fact, short of outright saying no conclusion will be reached, she may not even attend the meeting. However, throughout the ordeal Germany has been at odds with the European Central Bank over its belief that private investors share the burden in another rescue package. This could indeed be a stubborn front by Merkel in an attempt to highlight dismay. Greek Prime Minister George Papandreou has released a tactile statement stating that European Leaders need to act decisively in tomorrow’s meeting. This is a clear attempt to pile on the pressure. The IMF yesterday called for harmonised Eurozone taxes and a sharp conclusion to the ongoing saga to prevent contagion spreading. Papandreou has followed suit naming Italy and Spain as the next countries to follow suit should leaders fail to act soon. Keep a close eye on tomorrows proceedings; one way or another, we could see strong movements in the foreign exchange markets.

Other Currencies – Highlights

As flat currencies continue to be a potential headache to investors, the Swiss Franc appears to have leaped ahead of the US Dollar as the global safe haven currency. After the price of gold shot up to a record high and the dollar retreated on debt concerns, FX markets are viewing the franc as the next best place to place their cash. Traders have retreated from bullish views on the South African Rand as the debt crisis in Euripe and the US sap demand for higher-yielding assets and a strike by fuel workers in South Africa threatens economic growth. The Rand has been a strong performer over recent years and is now just beginning to slip back on recent growth forecasts.