- UK Inflation hits highest level in 11 years
- New Zealand Inflation in negative numbers
So Naomi Campbell threw her mobile at a housekeeper, Big Brother
inmates are either stupid or racists (I know where my bet would lie)
and Janet Street-Porter has been accused of racism although quite how
they understood a word she said I am not sure. But while the newspapers
wrangled over these stories they also managed to note that UK inflation
hit the highest level in 11 years in December. This serves to explain
the Bank of England’s surprise interest rate hike and bodes well for
Sterling strength in the coming weeks. However, the Pound has gained so
much strength so quickly that we are still very concerned that it is
overbought and could correct lower at any stage. It may take a
surprisingly awful piece of UK data before we see a proper correction
and this morning’s UK employment growth, whilst disappointing at just
4.1 percent (the same as last month), wasn’t enough to shake the Pound.
Clearly, it is below the Bank of England’s 4.5 percent benchmark but is
still above inflation. Unemployment benefit claimants fell by 5,500
last month and that balanced the flat wage figure a tad. Overnight, we
had rumours that the Bank of Japan is likely to keep it’s interest
rates on hold when they meet tomorrow. You may be wondering what the
heck that has to do with you but beware because funds borrowed in Japan
at very low interest rates are being invested in New Zealand,
Australia, Europe, Britain and the US as investors seek higher yields.
This trend is likely to continue as long as Japanese interest rates
remain ludicrously low and the volume of these funds will continue to
create inconsistencies in other currency
pairs. It’s an external factor which can cost you money if you are
unaware of the risk. What’s more, as we approach the end of the
Japanese financial year in March, a lot of this overseas investment will flow back into Japan and that will create sizable moves in other currency
pairs as well. The rest of the day is focussed clearly on the US data
releases and these are many and varied and what’s more, they are
covered below so I won’t duplicate the information here. Have a
glorious Wednesday and I will try to do the same in a damp and rainy
London. Woe is me.
The New Zealand Dollar is a little more affordable this morning for
those in the UK planning a move to the land of the silver fern. The
Kiwi Dollar has resisted all attempts by traders to strengthen it and
remains on the back foot after the first negative NZ inflation figure
in 6 years. Inflation in Q4 of 2006 fell by 0.2 percent and this poured
scorn on any expectations of NZ interest rate hikes and allowed the
Kiwi currency to weaken
across the board. We have to turn to the charts to assess the likely
extent of any gains in GBPNZD ad the target has to be NZ$2.87 in the
first instance but the momentum indicators are still very bullish and
further gains may be in the offing. All the time the UK interest rates
are forecast to rise and Kiwi rates are set to stay flat, the relative
gains in UK yields will favour the Pound. However, we need to be
cognisant of the effect of the Japanese carry trades, as mentioned in
the main section. In the short term, this may hold back the gains in
GBPNZD but things will get very confused as we approach the end of the
Japanese financial year
because the volume of funds flowing from the UK and New Zealand back to
Japan are likely to create some significant volatility and that could
be good or bad for those with NZDs to buy.
The full detailed list of US data due for release today is too long to
fit on a small report like this but a quick run through may give you a
flavour of the potential for volatility. Producer prices, inward
investment into the treasury market, industrial production, the NAHB
housing market index and the Fed’s Beige Book are all set to accost us
throughout the day. Add to this speeches from two voting members of the
Federal Reserve and tomorrows barrage of inflation, weekly jobless
claims, housing starts, the Philadelphia Fed business sentiment index
and spikes and troughs in the GBPUSD exchange rate are as sure as eggs
is eggs. The timing of the releases and the accuracy of market
forecasts will be the determining factors in the magnitude of the
volatility and that will keep all traders on their toes for the next 48
hours. I think it is safe to say that with GBPUSD testing the very top
of its range and so many reasons for traders to be wary, both buyers
and sellers of the US Dollar against the Pound will have chances to do
rather well in the coming two days. Just let us know what you need to
achieve and we can assess the best way to achieve it.
Just think of how stupid the average person is, and then realize half of them are even stupider!
George Carlin
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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