Archive for February 2010

Central US Interest Rate to Stay Low

February 25, 2010

US Federal Reserve chief Ben Bernanke has said that the base interest rate there is to remain low for an extended period. According to the central bank, it is just too early in the recovery process to begin to raise rates.  Not that markets were complaining – US stocks jumped by over 1% following Mr Bernanke’s comment.

Last week, the Fed took everyone by surprise by suddenly raising the discount rate (that is the rate at which banks receive emergency loans) to 0.5% from 0.75%.  It wasn’t the act itself which shocked the market but the timing – it happened much sooner than expected.  Consequently, US stocks had slipped as did the USD.

Meanwhile in the UK, the Bank of England has once again released a wave of uncertainty, by giving an ambiguous stance on asset-buying.  Yes, they decided to finish the 200 billion pound quantitative easing programme at the last policy meeting.

But now it appears as though they are considering re-installing it if inflation doesn’t head nearer to target soon.  The comment echoed a similarly downbeat tone from BoE head Mervyn King earlier in the week, and brought a weakening of the pound by almost a cent to just below $1.54 against the US dollar.

€25 billion for Greece bail Package

February 22, 2010

According to reports from Germany, up to €25 billion will be pooled together by eurozone countries to bail out Greece.  The package, which has caused much uncertainty among markets due to its mysterious and unclear size, is intended to restore stability to the eurozone.

The euro itself has had a tough ride in recent weeks although towards the end of last week it managed to gain around 1% against sterling, after poor UK retail sales figures between December and January were released.  In addition, many currency exchange analysts warned against the euro becoming oversold – not long after, some risk appetite was restored.

9-0 Vote against more QE

February 18, 2010

The Monetary Policy Committee of the Bank of England voted unanimously against increasing quantitative easing.  All nine members agreed that it was not suitable to increase the programme now.  However, they agreed that if they need ed to do so, they could call on further fiscal boosts.

Introduced in March 2009, while the country was rooted deeply in a recession – the worst in over 50 years – the QE programme was the so-called ‘money printing’ measure.  In other words, new money was created for asset purchases, which would give the economy a fresh flow of liquidity.

200 billion pounds were earmarked for the scheme, and it was seen to have worked.  By the final quarter of 2009, the economy just scraped back into growth.

The MPC are said to be disappointed that the schmeme didn’t bring more growth but would likely reach to it again in future if necessary.  Perhaps if inflation doesn’t begin to behave?  In January it was well above target at 3.5%; in the medium term it is forecast to be below target (the target being 2%).

After the MPC’s unanimous vote was made public, the pound reacted by rising slightly against the euro.

Euro battering Over?

February 17, 2010

After weeks of being sold by the bucketload, the euro actually managed to gain by a few points against the pound on Tuesday.  It seems as though investors are easing up on their anti eurozone views, after relentless negative sentiment surrounding Greece’s severe fiscal problems.

Now, risk seems to be back on the menu for currency traders and perhaps the tough ride is drawing to a close.  Some currency exchange analysts suggested that short positions on the euro might have gone too far in recent weeks.

Meanwhile the pound will have an interesting week – though it remained pretty unaffected by yesterday’s above-target CPI figure, at 3.5%.

New Tax for Speculators?

February 15, 2010

Calling all currency exchange speculators!  Are you ready for the Robin Hood tax? 

Some 350 economists and showbiz entertainers have written a letter to leaders of the G20 nations, calling for them to implement a new tax on speculative trading on currencies, shares and other securities.  The tax, dubbed ‘Robin Hood’ is aimed to take a percentage from the ‘rich’ to give to the poor. 

According to the campaigners, there is urgent need to change the way in which the global financial system works – and major crisis points such as global climate change and poverty should be given funding by the wealthy.  Apparently, implementing a tax of 0.05% on speculative transactions would be “technically feasible”.

Uncertain Recovery?

February 11, 2010

The Governor of the Bank of England, Mervyn King, yesterday painted an uncertain picture of the UK’s recovery.  He said that currently the economy “bumps along the bottom,” and that a ‘double-dip’ is likely – in other words, that a quarter of negative growth will happen this year, meaning another descent before the recovery heads back up.

Doesn’t sound particularly hopeful, but Mr King and his committee say that they don’t rule out re-introducing the quantitative easing method if the economy needs it.  City economists are certain that the base interest rate will remain very low until next year – by the end of this year it is expected that it will still be below 1%.

The BoE is still confident that the pound sterling’s depreciation (helped by QE) will prove successful in the coming months and year.

Pound remains Low

February 9, 2010

The UK high street had to deal with poor sales figures in January – overall retail was down to its worst level in 15 years in what some analysts branded an “awful” start to the year.

But while physical shops were suffering low shopping numbers (compared with the year before), online shoppers have been out in force – sales were better than ever.  Is it just the cold weather that is stopping us from hitting the shops?

Meanwhile the pound is still having a hard time, dealing with the nervous sentiment surrounding it – and its country.  Britain still has the heavy debt problem which is being compared to that of Greece.  Politically there is much uncertainty, as the erstwhile surefire-winner Mr Cameron (of the Tory party) sees lower support – could Mr Brown win the election?  Currency exchange traders are staying short on the pound, although it did edge up in this morning’s early trade (London session).