Mike Paterson’s daily Forex brief
Last night, at the annual Mansion House speech in London, new measures were announced by UK Chancellor Osborne and BOE Governor King to provide liquidity to UK banks.
Between them they will provide billions of pounds of cheap credit to banks to lend to companies. Banks will also have access to short-term money to deal with "exceptional market stresses". Rather than add to the current Â£325 billion QE of which little seems to make its way into the economy these new measures come with a proviso that it must be lent (should have been a condition of the bailouts before frankly) whilst also giving support for any shortfalls in bank cash each month. This will be known as ECTRF (Extended Collateral Term Repo Facility) and was outlined in December last year.
While banks shares have understandably jumped this morning it’s still monetary easing by any other name and the initial reaction on FX markets has seen a weaker Pound, exacerbated by good buying interest in other currencies including the Yen and Aussie.
GBPUSD is still wandering around 1.5500 as the US $ comes in for a little profit taking but EURGBP has been up to key resistance around 0.8155 (GBPEUR down to 1.2262) while GBPAUD is down to 1.5460 and GBPJPY lower again at 122.40 just off its overnight lows of 122.14.
If the BOE/Treasury moves are also designed to weaken the Pound through monetary easing to assist exporters then they will have a fight on their hands if investors like the security that the banks are being given and pile into UK bonds. No one said anything is simple out there right now.
ECB President Draghi has been spouting forth this morning effectively saying that’s it now down to the politicians to sort out the Eurozone mess and that the ECB is limited in what else it can do. EURUSD has seen a few buyers overnight and been as high as 1.2647 but currently off its highs around 1.2625 while USDJPY is lower at 78.98 and AUDUSD is back above 1.00 and just off highs of 1.0040.
This weekend see the Greek elections and G20 meeting so we can expect some cautious trading today spiked by data both sides of the pond. There is great expectation that everything will kick off next week though.
Stop Press! UK Trade Balance data just out at – Â£ 10.103 billion, versus forecasts of – Â£ 8.5 billion. The latest figure widens from a revised -Â£8.734 billion in March and is the second largest deficit on record. On EU trade balance -Â£5.202 billion (expected -Â£4.18 billion) the largest deficit since Sep 2011. Pound little changed immediately.
So England face Sweden tonight needing a victory which statistically looks interesting to say the least. England has never beaten Sweden in seven previous competitive meetings and no country has ever stayed unbeaten in eight against England. Game on!
While over at the US Golf Open, Tiger is in the hunt while World No 1 Luke Donald carded the same score (9 over par) as 14 year old Andy Zhang. Funny ol’ game.
Have a great week-end everyone.
Interbank Rates 08:42 BST
Today’s Data: BST
09.30-UK – Trade Balance
10.00- EU – Employment Change
13.30- US – NY Empire State Manufacturing Index
14.00. US – TIC Net Long Term Investment Flows
14.15-US – Capacity Utilization 14.55- US- Michigan Consumer Sentiment
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