- UK interest up – no surprise!
- US Dollar weaker on interest rate expectations
So 1,600 hundred people are
in the UK plotting 30 different ways to kill the rest of us and MI5
have a good idea of who they are. How insane then that they have to
wait until the plots are hatched before arresting them, especially when
400 weapons were handed in to the Manchester police in just one month
of amnesty. Still what do I know? Well quite a lot as it turns out
because our little quiz team Sam Stanley, Gavin Herridge , Alex Ross
and your humble narrator did rather better than other Halo Financial
entrants at last nights quiz and we are gloating heartily this morning.
The markets were not concerned with the worlds fastest birds nor with
the only mammals born with horns, (I can hear you googling the answers
as I write) they were rapt in concentration on the US election and UK
interest rates. The Bank of England did as expected and raised the cost
of borrowing in the UK by 0.25 percent but were not overly hawkish in
their ongoing expectations for higher interest rates. Bond traders are
pricing in another interest rate hike in Quarter 1 of 2007 and then a
lengthy period of no change and the markets decided that they had
bought enough Sterling for now, so the Pound fell against all comers
for a while. The GBPEUR rate is covered below but against the US
Dollar, the Pound regained all of its losses before the close of play
and is higher still this morning. US Dollar selling comes from mixed US
data followed by news that the People’s Bank of China is planning to
sell some of its US Dollar based assets in order to balance their
reserve holdings. They are estimated to hold a trillion dollars worth
of assets and so this could be very significant. It certainly appear to
be more significant than the fact that the Democrats have seized
control of both Congress and the Senate in the US, thereby creating
even less chance that GW Bush will be able to carry on as before. Never
mind all that though, today is
devoid of data and the markets will have time to analyse the charts and
set themselves up for next week. And what is all this drivel about
whether to wear a red or white or no poppy at all? People might be
anti-war but they cannot be against the defeat of fascism nor the
sacrifice that has been made by hundreds of thousands of selfless
people for our safety and security. I am wearing my poppy with pride.
The Sterling - South African
Rand exchange rate is like a feather in a thunderstorm at the best of
times; flitting from top to bottom of its trading range and flying all
over the place on the merest hint of an interest rate move, commodity
story or gold scare. Mind you when you add a burgeoning government debt
level and volatility is assured. The Rand strengthened yesterday on
very positive equity market news, which ironically was fuelled by the
weaker Rand assisting exporters, and that brought in investment funds
from abroad. There has to be a point at which the strength that such
inward investment flows create outweighs the advantage that they sought
to capitalise upon and this should equate to the chart support level on
GBPZAR at R13.25. There is little doubt that GBPZAR has reversed its
rapid decline of the past few months and that a lower target is
appropriate now. Short and medium term requirements, if not
already covered at R14 plus, should be looked at seriously now.
The Pound is sliding against
the Euro while making gains against the US Dollar. US Dollar weakness
is evident for all the reasons mentioned above but that doesn’t explain
the Euro advance. This appears to be no more than interest rate related
with the Bank of England still saying the right things yesterday when
it hiked UK interest rates, but they weren’t saying it with as much
conviction as when they hiked rates last time in August. This is
changing perceptions, especially in light of the European Central
Bank’s expected interest rate hike next month. GBPEUR should slide
further although there was a level of support at €1.4820 which held
last night. Worryingly, the relative strength measures which go some
way to indicate trend and momentum are pointing lower still so this
small bounce seen over the early hours of UK trade is probably not
sustainable. As mentioned before, €1.50 is looking further and further
away
but to trade within a cent or so of the top of the market is still a
terrific opportunity. For those of you with forthcoming Euro
requirements, we recommend you look to act sooner rather than later.
If winning isn't everything, why do they keep score?
Vince Lombardi
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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