Weekly Market Update 20-04-2011
 

The Bank of England Minutes were released this morning showing that the vote for an interest rate hike were split with Spencer Dale and Martin Weale voting for 25bps increase and Andrew Sentance voting for a 50bps increase. Everyone else voted against a hike. Members in the no-policy change camp said they saw no evidence of inflation influencing pay deals or price setting. The fact that the 6-2-1 split remains shows chances for a rate hike soon to be less likely. Had one more member shown favour for a rate hike the £ could have strengthened, but as the split remains 2 for and 6 against it may be unlikely be see a hike all summer.

The biggest news out this week from the eurozone is that Greece is looking at restructuring its debt (changing terms of the loan and increase borrowing costs). This has, however, been denied by the European commission & has in turn made investors very concerned about being forced into a delay for their repayment. On Tuesday, Greece raised1.6 bn Euros but had to pay a 4.1% yield where as in February, it was only 3.8%. (Greece borrowed 110bn EUR from eurozone partners and the International Monetary Fund last May).

We also saw news on further discussion about Portugal being bailed out which should be decided by the middle of May. This is being opposed by the True Finns party who are anti-euro and may complicate things further as the European financial stability facility (440bn euros) is funded by members of the eurozone and requires unanimous consent to be used. The Finnish government could veto the package and the parliament can vote on whether to approve measures. On the back of this story, we saw the EUR weaken against the USD and GBP. We also saw concern about Europe’s debt problems hit shares with a lot of the major banks including RBS and Lloyds.

£/€
Range of the week: 1.1278 – 1.1439
Variance of the week on £10k= €161

Eurozone PMI data was released on Tuesday showing improved figures from 57.6 in March to 57.8. However, once again this was due to German and French improved data showing that the two economies are the main reason for the eurozone’s economic growth.

£/$
Range of the week: 1.6165 – 1.6380
Variance of the week on £10k= 215

The main news to come from the US this week is in regards to the US credit rating. It has been suggested that their credit rating on its government debt could be cut by Standard and Poor (S&P). The biggest concern is that Democrats and Republicans will not be able to agree a plan to reduce the growing US deficit. S&P believe that the size of the US deficit is creating instability in the financial markets and any concern over the US ability to pay back it’s debt creates “huge ripples in the world economy”.

This concern caused the US and European shares to fall and saw the USD drop against the EUR, CHF and GBP. The main UK, German and French indexes all fell by at least 2%.
The current US debt is at $1.4tn and expected to reach $1.5tn in the current fiscal year.

Barack Obama suggested this week that the US could plunge back into recession if the ceiling on the US borrowing is not raised as the debt limit currently is $14.3tn.

It is worth noting that we have seen EUR/USD climb from 1.41 to 1.45 this week and are currently trading at a 16 month high. This is a massive 17.72% movement in the last 12 months.

£/AUD
Range of the week: 1.5401-1.5547
Variance of the week on £10k= AU$ 146

The main news out from Australia this week is the Reserve bank board minutes.
The RBA decided that no rate increases will be seen anytime soon. The member’s view that not increasing interest rates would ensure the medium-term inflation outlook remained consistent with the target. Due to this we saw the AUD weaken against most currencies

£/NZD
Range of the week: 2.0480-2.0765
Variance of the week: on £10k=NZ$ 285

No major news or data out this week so far.

£/ZAR
Range of the week: 11.075-11.2290
Variance of the week: on £10k=ZAR 1540

No major news or data for the week so far

£/CAD
Range of the week: 1.5539-15752
Variance of the week: on £10k=CA$ 213

Consumer Price Index data was released on Tuesday showing that inflation rose to 3.3% (forecast 2.8%) from 2.2%, much stronger than expected and at the fastest rate in more than 2 ½ years. Due to this, there is suggestion that interest rates will be increased to combat inflation.