Foreign Currency Exchange Report 12 March 2010

‘A weak currency arises from a weak economy which in turn is the result of a weak Government' - Gordon Brown circa 92.

Sterling

Sterling was the main beneficiary in the currency exchange market yesterday, as comments from the Bank of England supported the much maligned Pound. After what has truly been a torrid year for Sterling, (seeing it fall 7% on a trade weighted basis) yesterday saw some form of respite from comments by Goldman ‘Vampire Squid' Sachs.

Support for the Pound exchange rate stemmed from the BOE's quarterly inflation report, suggesting we could see a large uptick in inflation over the course of 2010. Sterling was also buoyed as Goldman's gave their views on the UK's general election. Speculation over the threat of a hung parliament as of late has been the bane of Sterling's life, as it continually provoked traders to sell. The general consensus is that a hung parliament will make it difficult to enact the required legislation to bring the fiscal deficit down. Goldman has suggested this will continue to hold the Pound hostage in the short term, as the tone of the campaign and the polls can pin it back. However, in spite of all this they have revised their forecast, suggesting the Pound is oversold, with three month revisions even as high as 1.19.

With no notable releases out in the UK today, expect the market to continue to trade on sentiment. In what is still a volatile environment and with fresh worries over a potential sovereign debt rating downgrade, do not be surprised to see the Sterling exchange rate slip lower still, even in spite of Goldman's predictions.

Euro

The Euro has slowly but surely moved away from its Greek meltdown, as the market has taken confidence from the plans put in place to tackle its horrendous deficit. To be fair, all credit goes to the Euro-zone as it has handled the situation incredibly well.

The Euro exchange rate has fallen dramatically against most major currencies this year, over fears that Greece may be booted out of the Euro-zone, however, in spite of all this it has held steady against the Pound.

With economic growth in the Euro-zone as a whole still very stagnant (lower than both the US and UK) and still lingering concerns over Greece, we could see a lack of fiscal unity among the nations that make up the monetary union ultimately undermine the Euro. In what has been a quiet weak, the market will look for direction in today's volumes from the Industrial Production figures at 11.00am.

US Dollar

The juggernaut US Dollar has been in a win-win type mood over the past few months as it has continually strengthened against every major currency. A combination of improving economic conditions and a refreshed safe haven appeal have seen the Dollar outperform most currencies. However, the recent Dollar exchange rate rally has begun to wilt as concerns over Greece have resided and recent economic data in the US has been inconsistent.

In what has been a very quiet week in terms of data, the US Dollar received brief support on the back of a narrowing trade deficit, coming in against analysts' expectations of it widening. Such little significant economic data this week has left the main currency crosses within well-worn trading ranges. Looking forward, the Dollar exchange rate really could go either way, and it seems the market is looking for further direction from more detail from the FED. Later today retail sales figures could give further inclinations as to how the recovery is taking shape on the high street in the US.

Other Currencies

In other news the New Zealand Dollar exchange rate lost ground as the Reserve Bank of New Zealand kept rates on hold at 2.5 per cent, and warned that weak consumer spending and high bank funding costs were slowing the countries recovery.

Please contact Foreign Currency Exchange on +44 (0) 20 7989 0000 to discuss your currency exchange requirements.