Midday Madness in Europe

The focus of today will rest firmly on interest rate decisions. There are whispers here, there and everywhere about what various central banks will be doing to interest rates in response to various levels of economic recovery. However, the main focus will rest firmly on Trichet this afternoon. Those involved in currency purchasing will be advised to remain very astute to the days events and where necessary speak to your broker to get further advice.

Pound Sterling – UK Markets

BoE Governer Mervyn King seems to have gained support in his continued resistance against a rate rise as most Bloomberg investors predict that rates will be kept firmly on hold again today at 0.5 percent. As mentioned yesterday, UK manufacturing and construction growth slowed in April and GDP data released last week suggest that the economic recovery has somewhat stalled. On the flip side, inflation is set to reach highs of 5 percent in the coming months which three policy makers insist is a call for a rate rise. However, with the economic recovery slowing, a rate rise is unlikely. A flagging currency has been a creation of many internal and external factors but the bottom line is, confidence is low and until this changes Sterling is sitting on shaky ground.

US Dollar – US Markets

Whilst we paint a bleak picture for Sterling, the US economy really is in trouble. The once safe haven currency has dwindled in recent weeks and continues to do so, with some forecast suggesting this may not be the end of its decline. Service industries expanded at its slowest pace in eight months in response to the ever increasing energy costs. On the back of this, stocks fell and Treasury reserves rose as the slowing economic recover that began at the start of the year has continued into the second quarter. With no ways to paint a brighter picture, employment in US companies also slowed.

Euro – European Markets

Further to yesterday’s news, the Euro rallied further against the Dollar on the back of further murmurs that ECB President Jean-Claude Trichet will intimate that a further interest rate rise will be due this year to combat inflation. Further to this, the German economy came to the rescue once again as factory orders rose for the third month in a row which indicates the economic recovery is taking pace. If Trichet indicates today that a rate rise may be due in the near future the euro may rally further. Whether or not the market has already factored this in is a gambling guess but come GMT 12:45 all shall be revealed so it is suggested clients keep their wits about them.

Other Currencies – Highlights

Two currencies steal the headlines in other parts of the world today. Firstly, the Canadian Dollar has followed its nearest counterpart as stocks and commodities fell. This has consequently reduced demand for major assets related to economic growth, subsequently causing the currency to wane slightly. After the Australian Dollars recent rally, the currency down under has stumbled for the last four consecutive days as a government report showed retail sales unexpectedly dropped in March adding to concerns that the Reserve Bank will delay raising interest rates.