Euro weakened by Austria default possibility

Today's Highlights

Sterling strong on good news stories

Euro weakened by Austria default possibility

US Fed in the spot light this afternoon

Bank of Canada could cut rates

FX Market Overview

The British government has a couple of good news stories to shout about this morning. The Institute for Fiscal Studies reported that household incomes are largely back to 2007 levels and the government managed to sell its 40% ownership of Eurostar for £750 million. Sterling is strong and is likely to remain strong through the day. Shop prices are still falling, according to the British Retail Consortium, and this morning's service sector PMI is expected to be positive again. Nothing appears to be tarnishing the Pound's lustre at the moment.

By way of contrast, most of the comment from Europe appears to be negative. Austria is the latest economy to come under the EU spotlight. Credit ratings agency Fitch has stripped Austria of its AAA rating and the Alpine region of Carinthia is on the cusp of bankruptcy. I am sure efforts are being made to ensure we don't see the first sub-sovereign default since the collapse of Lehman Brothers but it is a worry. The upbeat Eurozone news is that French service sector data was back in expansion territory after a less than 50 reading in January. That's a little relief for the beleaguered Eurozone but the Greek problems still weigh on the Euro.

We heard overnight that Australia's economy grew at a modest pace in Q4. 0.5% quarter on quarter growth was above the previous 0.4% but not up as much as forecast and that has prompted concerned comment over the laggardly pace of growth and its impact of job creation - or lack thereof. In spite of that, the Australian dollar gained a little strength overnight; perhaps in relief that the GDP data wasn't worse.

We get the US service sector report this afternoon and the forecasts are marginally positive but the index will still be in solid growth territory. We will also get a smattering of speeches from various Federal Reserve speakers including the Chairwoman herself. The Fed will also publish the Beige Book; a regional round up of economic performance. The Dollar remains strong and further strength should not be ruled out.

The Bank of Canada will make its interest rate announcement this afternoon and, whilst 'no change' is the most likely scenario, there is an outside bet on a small interest rate cut. The Canadian economy if heavily reliant of energy and commodity exports; markets which have been battered of late. So the BOC could do worse than inject some cheap capital into the financial system. The Canadian Dollar is likely to weaken ahead of that meeting but where it heads after that is all down to the BOC announcement.

The Belmont Hall and Restaurant in Manchester, New Hampshire has a policy of giving a discount to customers on their birthday. The discount is equivalent to their age; so a 40 year old gets 40% off their bill. So when 101 year old Joseph Nelson had his breakfast there, he actually got the meal for free and a 7 cent refund. I love that policy.

Quote

If Thomas Edison had been to business school, we would all be reading by bigger candles.
Mark McCormack