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Pound looking softer than Mr Whippy in a heatwave

US Dollar:

Thursday saw the dollar gain against both the euro and pound, knocking the common currency off a two-week high after investors had second thoughts about Greece’s austerity plans, despite the governments successful sale of a 10-year bond, and a ratings cut for Deutsche bank.  We also saw dollar sentiment lifted by a drop in the number of Americans filling new claims for unemployment benefits. US data showed 469k initial jobless claims were filed in the week, down from 495k the week before and just ahead of forecast for 470k. The figures were closely examined ahead of today’s US employment report for February, a key if volatile indicator of the markets. Wildly varying estimates for lost jobs have persuaded investors to cool their heels so far. US offi¬cials have tried to prepare the markets for a bad number, so estimates now vary from a loss of 50k to 150k, ostensibly because of bad weather.
Data 13.30: Non-Farm Payrolls –50k from –20k, Unemployment Rate 9.8% from 9.7% & Average Hourly



Yesterday saw the Bank of England offer the pound some support as the BoE left interest rates un-changed It also decided against restarting its bond-buying program, known as quantitative easing, although it left the door open for a future resumption. The pound took advantage of euro weakness and moved up to 1.1050 on the euro, but took a hit on the dollar to fall towards the $1.50. As Britain’s financial woes mount, one suspects that we may need a fresh line in chirpiness, because far from being sound, the pound is looking after than Mr Whippy in a heatwave. Sterling’s exchange rate is, in crude terms, a 24/7 opinion poll of what the mar¬kets think about Britain’s economic prospects. As currency traders fret over how honest the Government is be¬ing in its pledge to slow the growth of state debt, their enthusiasm for holding pounds is dwindling. And who can blame them? Britain's budget deficit, as a percentage of GDP, is the worst in the G20, with total debt expected to go beyond £1 trillion and reach 100% of GDP. This in part explains why Britain must pay much more to bor¬row than rival economies such as Germany, France and the US. A lower level for the pound is not all bad news: exporters can sell goods and services more cheaply to overseas buyers, without having to slice into profit mar¬gins. There are however, significant disbenefits attached to a devalued currency: the increased cost of importing materials feeds into prices, which in turn makes more likely the need for higher interest rates.
Data 09.30: PPI Input YoY 7.8% from 8.4%, Output YoY 4.0% from 3.8%.


The latest  exchanges over Greece’s efforts to resolve its public deficit and debt crises appeared to undo some of the goodwill generated on Wednesday when Athens announced an additional set of austerity meas¬ures. The euro fell against the dollar and to a lesser extent, sterling as well. Its seems the more vocal the Greeks are about everybody else bailing them out, the more pressure they bring on the single currency. Greek Prime Minister Georgios Papandreou waned that a lack of support from Germany and the European Union would be  “costly for all of Europe.”Greek comments that it could seek help from the IMF, if its eurozone part-ners failed to back it, were brushed off by ECB head Jean-Claude Trichet, while Germany insisted Athens still must sort its own problems out first before an aid. Data 11.00: German Factory Orders.



• Had to include this one, a corker from the Germans: Josef Schlarman, a senior figure in Germany's gov-erning Christian Democrat party, has said the Greeks should sell everything he owns to pay his creditors, including buildings and unpopulated islands. Should make the Greek PM’s visit to Germany today inter¬esting.




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