The US economy continues a slow, painful recovery, but Congress must prepare to address an “unsustainable” level of debt in the federal budget, Fed Reserve Chairman Ben Bernanke cautioned on Wednesday. “Our na¬tion’s fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession.” Ber¬nanke told the House Budget Committee. It was an interesting submission as it shows contagion is a concern for everyone not just Europe. In all of the recent sovereign debt worries no-one has discussed the US, almost as if it is a taboo subject however if the Chairman of the Fed starts to mention it in Congress then it shows it isn’t a subject completely off limits. The housing market and 9.7% Unemployment rate are the suborn concerns and if everyone starts switching off the spending tap, as indeed they may have to, will be the first areas to continue to see pain. USD weakened off slightly against GBP and EUR yesterday however was pretty much sideways with¬out any significant move.
Pound:
GBP had a moderate rally yesterday against both USD and EUR opening this morning mid 1.45 and unchanged on close against EUR at 1.2130. Where now is the big question and the Emergency budget on 22nd Jun will probably be the decisive factor. Not enough measures to reduce the deficit and the Bond markets will react sell¬ing Gilts pushing up Interest rates and the GBP selling off. Too stringent and the markets will react negatively believing a double dip recession will be on its way. The new Chancellor finds himself looking for Goldilocks terri¬tory on his first real outing, with not only the policy being micro analysed as every twitch or stutter will be noted as well. Suddenly a cushy number in the Department of Agriculture as opposed to Chancellor of the Exchequer probably looks extremely appealing!
Data: MPC decision at 12:00 expected unchanged at 0.5%the minutes will be probably of most interest in a couple of weeks.
Euro:
The EUR rallied slightly against USD however it is a small respite. Having had a huge move it maybe a case that the could be a period of sideway movement however sentiment is still very EUR negative. Tight stops to the downside are the order of the day if you are a USD buyer selling EUR as it is very difficult to install any con¬fidence that the EUR plight is over. In Germany, Merkel this week proposed EUR 80 Billion in spending cuts and it is believed these measure will eliminate up to 15,000 government jobs, cut unemployment benefits, and add new fees to air travel and nuclear power plants. Merkel said that Germany was withdrawing its stimulus and aiming for sustainable growth rather than growth at any cost. Data: ECB decision at 12:45 expected unchanged at 1%; Trichet talks at 1:30 and this will probably be the volatile period. Spreads will possibly widen, so if anything required maybe look to book before this
General:
• Interesting chart below of GBP against Polish Zlotty. As can be seen, since the beginning of Spring GBP has rallied strongly mainly as a reaction to EUR weakness which PLN follows, but this is a significant move certainly a trending chart. Note the Daily moves further down the curve becoming more volatile.
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| GBP/USD | 1.4570 |
| GBP/EUR | 1.2120 |
| EUR/USD | 1.2025 |
| GBP/JPY | 132.52 |
| GBP/AUD | 1.7390 |
| GBP/NZD | 2.1510 |
| GBP/ZAR | 11.3412 |
| GBP/CHF | 1.6708 |
| GBP/CAD | 1.5151 |
| GBP/SGD | 2.0563 |
| GBP/THB | 47.52 |
| GBP/HKD | 11.3582 red-down; blue-up (snap shot) |
These rates are for indication purposes
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John Paul Georgiou
Senior Foreign Exchange Broker