Rouble hits new lows despite 17% interest rate

Today's Highlights

Rouble hits new lows despite 17% interest rate

RBA worried about AUD strength ...still

BOE stress test – Co-op bank fails

FX Market Overview

Superlatives abound in common parlance. Everyone is described as 'amazing' or 'a legend' or 'my hero' so when something really heroic takes place, there don't seem to be the words to differentiate it. Tori Johnson was the manager of Lindt Chocolat Cafe in Sydney and Katrina Dawson was a customer of the café; both were truly heroic in the accurate and literal sense of the word. In confronting a crazed misguided gunman and trying to protect the friends and strangers around them, they instigated a sequence of events in which the people they were trying to protect survived and the gunman was killed. Tragically, both lost their lives doing such a brave and selfless thing. I think Ambrose Redmoon put it most succinctly; "Courage is not the absence of fear, but rather the judgment that something else is more important than fear." RIP.

The financial markets were rocked by a different event yesterday when the Russian central bank raised the base rate from 10.5% to 17% in order to try to stop the fall of the Rouble. The Rouble bounced briefly but is back at all-time lows again this morning and is still falling. It is scarily reminiscent of the BOE trying to keep Sterling within the Exchange Rate Mechanism and we all know that ended in tears.

The Reserve Bank of Australia published the minutes from its last meeting last night and the RBA is pretty unhappy about the strength of the Australian Dollar. As the Russians are confirming, it is hard for a central bank to make permanent changes to the value of a currency although the base rate in Australia does add a certain allure to the Aussie Dollar as far as yield hungry investors are concerned. The RBA has suggested the base rate will stay put for now but they may have their hand forced if the strength of the AUD continues to hamper growth. There is a little respite; the GBP-AUD exchange rate is testing the high A$1.80s and may even break through A$1.90 in the days ahead.

In the UK, the Bank of England's stress test was completed and all but the Co-op Bank managed to pass; with Lloyds and RBS barely scraping through. The Co-op has been told to unwind some of its loan book. That hasn't really affected the Pound to any degree but this morning's UK inflation data just might. If the forecasters have got their sums right, we will see the headline CPI rate fall to 1.2% on the year; robbing the BOE of any credible case for an interest rate hike. We also get input and output prices which are a sort of precursor inflation indicator and those too are expected to be lower. Sterling could slip a bit today.

This morning also brings the German and Eurozone ZEW economic expectations indices and, whilst the German one should be positive, the Eurozone wide index is likely to be pretty poor. The Euro has space to weaken and may well do so today.

This afternoon's US data is unlikely to change the US Dollar's fortunes ahead of tomorrow's US Federal Reserve interest rate decision. No change is expected from the Fed tomorrow but the tone and wording of their statement is a constant source of fascination for traders and analysts.

And as we approach the festive season, it seems many Christmas traditions are dying out because people are too busy. The Salvation Army asked people about their Christmas habits and 40% won't watch the Queen's speech and only 28% of those questioned will play a board game or charades. I can't understand that; surely seeing someone try to mime One Few Over The Cuckoo's Nest is one of the highlights of any Christmas. Isn't it?