We’re Spending Again, or are we?

In a week filled with scandals and accusations, International Monetary Fund chief Dominique Strauss-Kahn has resigned following recent accusations that he sexually assaulted a hotel maid in the US. Whilst he strongly denies all accusations, the damage caused by the case has forced him to step down with immediate effect. Unfortunately, this news has masked the issues facing the eurozone with Greece and Portugal still high on the agenda. Pound Sterling Data released this morning showed that UK retail sales rose by more than expected in April. The extra public holiday over the royal wedding along with unusually warm weather has been seen as the driving factor. However, this has done little to boost Sterling confidence and we remain overly cautious over its short term performance. Whilst inflation data came in well above expected suggesting that an interest rate rise could be on the horizon, Bank of England minutes released yesterday caused Sterling to fall against most major currencies. This after BoE Governor Mervyn King suggested that a rate rise may hinder the UK’s economic recovery. Therefore, short term inclinations forecast a rate rise is now highly unlikely. Dollar The Goldman Sachs Group has followed suit in cutting its forecast for the US Dollar stating that the world’s largest economy is lagging way behind other nations. Following speculation over debt limit increases, the dollar continued its decline, mainly against the commodity currencies on the back of price increases in raw materials and stocks. The dollar continued its slide against the euro for the fourth consecutive day. This before data due to be released today is expected to show that US existing home sales grew at a slower pace than previous, proving that the Fed will need to maintain monetary stimulus for longer than expected. Euro With the markets awaiting ECB President Jean Claude Trichet’s speech at GMT 1400 today, it has been a quiet morning with very little news or movement. However, comments made later today may determine positive or negative trends in the short term. If he shows a hawkish outlook then we can expect the euro to strengthen. Whilst on the other hand, a dovish outlook will see investors flood out of the euro and cause the single currency to weaken. Other Currencies – Highlights As one of the very few currency brokerages in the UK to actively trade the Brazilian Real, currency flows into one of the world’s largest emerging markets have accelerated exponentially. Having received nearly six times more inward cash flow in the first 13 days of May than in the whole of April could suggest that a recent influx of property buyers into Brazil may be onto a winner. Following yesterday’s Canadian Dollar recovery, the “loonie” as it is often called has rallied for the second consecutive day against the US Dollar as commodities including crude oil continued to climb. This has fuelled demand for higher-yielding assets and has caused the currency to appreciate by 0.2 percent against its closest neighbor.