Sterling buoyed by BOE comments

This Week's Highlights

Sterling buoyed by BOE comments

RBNZ weakens NZ Dollar

Eurozone data still poor

FX Market Overview

Happy St George's Day everyone. We are starting the day with some traditional English things. We have discussed the weather, tutted at politicians and we ate scones with clotted cream and jam and the debate raged over whether you should put the cream or jam on first. Could anything be more English?  We should do this more often.

The foreign exchange market didn't have a lot to go on. The Bank of England minutes were a damp squib. If anyone wasn't expecting a bit of concern over a bounce in inflation, they haven't been paying attention. That view was expressed in spite of 0.0% inflation right now. The BOE committee also expressed a rather optimistic tone with regard to the European economy and that is obviously important to the UK's recovery.  We will get some more info on the strength of the UK recovery today with retail sales and public sector borrowing data. Upbeat forecasts are in the majority, so beware of poor data because that would knock the pound.

The US data diary is a diminutive one today. A bit of housing data and the weekly jobless claims figures will probably not ruffle the Dollar's feathers too much.

We have had a slew of manufacturing indices from across the Eurozone this morning. They all came out on the negative side of forecasts and the euro has shifted to a weaker position as a result.

The overnight news from New Zealand is that the Kiwi Dollar weakened when a reserve bank of New Zealand official commented that interest rates were more likely to fall than rise in the months ahead. That's at odds with previously expressed concerns over the overheating housing market but maybe the RBNZ has some other measures up its sleeve.

So that's about your lot for today. Have a very Happy St George's Day. It seems kind of odd that we should have adopted as our Patron Saint a man who was born in Syria to Turkish and Palestinian parents, who served in the army of an Italian city-state and ultimately died in Turkey. But we did.

Currency - GBP/Australian Dollar

The upward trend in the Sterling – Australian Dollar exchange rate that started back in September 2014 is still intact. The Pound has ducked and dived a bit but whenever it has fallen back to the support line (in a fetching raspberry on this chart) it has found buyers and that has allowed it to rally again.  The uptrend is also supported by fundamental data. The UK economy is strengthening whilst threats from a slowdown in China are weighing on the Aussie Dollar. Equally, UK interest rates are almost certainly ready for a rate hike sometime later this year or early next, whereas, there is still a distinct possibility of a rate cut in Australia. Were it not for the UK election, it is tempting to think the Pound would be stronger. A break of A$1.95 would allow for further rises but if we see A$1.92, the door is open for further falls in this pair.

Currency - GBP/Canadian Dollar

The Sterling - Canadian Dollar exchange is being ping-ponged around by the strength of the US Dollar, by the erratic behaviour of Canadian economic data and by the stuttering recovery in the British Pound. Since we saw the C$1.75 low we saw last November, we have seen a high of C$1.95 and we are now back down at C$1.83 or thereabouts. This level is pivotal though. A break below C$1.80 would see this pair back down at C$1.75 and a bounce through C$1.85 ought to see the Pound strengthen to C$1.95 again in the months ahead. If the UK election is holding the Pound back, and I suspect it is, then the upward move is the more likely one.

Currency - GBP/Euro

The upward trend in the Sterling – Euro exchange rate that started back in December is blatantly evident in the chart above. Similarly evident is the sideways pattern that has developed over the last 6 weeks. There is unmistakable Sterling buying interest around €1.35. That equates to roughly 74 pence per euro. There was a flurry of Euro buying activity when this pair peaked at €1.43 in March. So those battle lines are well and truly drawn and, having identified the outer reaches of the market range, traders have gone back to watching the UK elections on this side of the Channel and watching the developing Greece story on t'other. Sterling is undoubtedly being held back by the UK election fears and the euro is definitely in limbo pending a Greek resolution. So there would appear to be more scope for a GBPEUR rally than a collapse.

Currency - GBP/New Zealand Dollar

News that the Reserve Bank of New Zealand is open to the idea of further interest rate cuts came as a bit of a surprise. There had been more talk of monetary tightening in the past few weeks as the RBNZ sought to dampen the overheating housing market. So the idea of looser monetary policy was a surprise to NZD traders who immediately sold the NZD quite heavily. As a result, the GBPNZD exchange rate popped back up to the same levels we saw at the start of the month. With Sterling's nervousness ahead of the UK election, we may not see further gains for now but there is clearly some appetite to buy the Pound in the mid to low NZ$1.90 area. By the same token, traders are very happy to leap in and buy NZDs anywhere near to NZ$2.00, so it is struggling to reach the magic 2.0 number.

Currency - GBP/US Dollar

The Sterling – US Dollar exchange rate chart starting from July 2014 is like a ski slope. There are a few bumps and moguls on the way down but it is at least a red run. Tumbling energy prices, a slump in commodities, the recovery in the US economy and the expectation of higher US interest rates are all factors. The end of the Federal Reserve's QE program is also an influence. At the time of writing, the Pound has bounced a little but it hasn't broken out of the top of this downward channel in the whole of that 8 month period. The key levels are $1.45, the bottom of the last dive and $1.51, the channel top. Use these as your targets for automated orders but it is perhaps not wise to try to catch the market at these extremes because it turns around like a feather in a tumble drier.

The Greek Economy

It is a slow day in a little Greek Village. The sun is beating down and the streets are deserted. Times are hard, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €50 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €50 note and runs next door to pay his debt to the butcher.

The butcher takes the €50 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €50 note and heads off to pay his bill at the supplier of feed and fuel.

The supplier at the Farmers' Co-op takes the €50 note and runs to pay his drinks bill at the taverna.

The publican slips the money along to the local hooker drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.

The hooker rushes to the hotel and pays off her room bill to the hotel owner with the €50 note.

The hotel proprietor then places the €50 note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes down the stairs, picks up the €50 note, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything.

No one earned anything.

However, the whole village is now out of debt and looking to the future with a lot more optimism.