Today's Highlights

FX Market Overview

I am starting to think no one anywhere was safe from the newspaper phone hackers. Now the FBI is investigating News Corporation in case they hacked the phones of victims of the September 11th attacks. The authorities should perhaps also check the phones of Princess Diana, Lord Lucan (sorry pre-mobile) Shergar and the Manic Street Preachers guitarist Richey Edwards; maybe they’ll discover the truth at last. Crikey, if they hacked mine all they would find out is what I had for dinner each evening and how many times my trains were late because that is pretty well all I ever use a mobile phone for.

The head of the US Federal Reserve, Ben Bernanke, did his utmost to reduce expectation of further cash injections into the US financial markets yesterday and that steadied the USD ship a little. Sterling would probably have made more ground against the US Dollar is there were not also speculation about the Bank of England adding funds to their £200 billion quantitative easing program. They may want to do so for the interest yield if nothing else; apparently the BOE has made £10 billion from the £200 Bln it has injected into the markets. A nice little earner Mervyn when money is hard to come by. As it was, a lack of UK data yesterday and an equally empty data diary today will leave the Pound to be washed about in the wake of the Euro and US Dollar movements.

Eurozone inflation data was n line with expectation and that is probably positive but that data was lost within a market engrossed in the Italy debt story.  The Telegraph newspaper has a very good article about debt within Europe and especially the problems in Italy. It doesn’t make for good reading for any of the countries concerned - not even the UK. In essence, unless Italy can keep rolling its debt, all €1.84 trillion of it (120 percent of GDP) at reasonable interest rates, the debt burden may be too high and Italy will need cheaper loans from the EU or IMF to keep the economy afloat. All eyes are on the release today of the bank stress test data across the EU. This is supposedly a check to make sure European banks could handle another financial shock if they had to. The real fear is that many banks in the Mediterranean area will not meet the required level. Perhaps the EU will do as they do with school exams and make it multiple choice in future with the answers printed on the back to ensure a good pass rate. Either way, we should not expect too much from these test results; the last set of stress tests were hyped beyond belief but changed nothing really.  It’s hard to be sure what the effect on the Euro will be if the results are awful; in recent times, poor Eurozone data has been largely ignored by the markets whereas positive data has been seized upon. Sooner or later that position will change but perhaps not just yet. Euro buyers may want to take advantage of this morning’s Euro weakness just in case it doesn’t follow through after lunch.

The euro looks set to end the week stronger against the US Dollar.  From the Eurozone, we only get trade balance data today but we’ll get a raft of numbers from America. Forecasts vary across a broad spectrum so the door to volatility is wide open. However, the US Federal Reserve holds most of the cards on that and they appear to be playing their hand rather erratically.  

Elsewhere, the markets are equally lively; the upbeat comments from Ben Bernanke have led to a flow of funds out from the US Dollar and into the likes of the Australian and New Zealand Dollars. That has worsened the exchange rate for those trying to buy the Australasian Dollars.  Nervousness around the Eurozone is weighing on share prices and that has a dragging effect on the likes of the US Dollar and Sterling because of the volume of external investment in these countries. Commodity markets are still relatively robust so that adds strength to the currencies of commodity producing countries; the Canadian Dollar and South African Rand are prime examples. 

Finally, as we head off into the weekend, spare a thought for the drivers around Los Angeles where the 405 freeway, perhaps the busiest road in America, is going to be shut for two days. The prediction is that the area will be gridlocked and result in a 64 mile traffic jam. All together “Are we nearly there yet?”