In this week's
update:
GREEK PROBLEMS OVERSDHADOW ALL MARKETS
Investors still not convinced that Greece can sort itself out without external help. Sterling lumped with 'risky' currencies as dollar and yen push ahead; Loonie sides with Greenback.
It was not quite a one-way street for sterling but it looked like one for much of the week. Last Monday's $1.71 starting point was the high. Although the pound looked for a while as though it would be able to cling to a $1.68-$1.69 range it lost its footing on Friday to open this morning at $1.6650, just off its lows.
Until a month or so ago the world's investors were still dismissing the fiscal problems of Greece as nothing more than a little local difficulty in an unimportant south eastern corner of Europe. They were far more interested in how the German and French economic locomotives were hauling the rest of the continent ahead. Now, the tables are turned. Hard economic data, good or bad, get barely a moment's attention. Instead, the focus is on the fiscal crisis in Greece which temporarily overshadows not just the euro but every currency and every market. The European Commission, the European Central Bank and the Euroland governments appear to have hardened up their attitude to Athens and the message to Prime Minister Papandreou is 'Sort yourself out or else.'
Investors worry that it will not be as easy as that. Especially during the second half of last week the overriding sentiment among investors was a nervousness about everything. In a return to the risk-aversion tactics of last year they offloaded shares and reduced their holdings of 'risky' currencies, stocking up instead with the safe-haven US dollar and Japanese yen. Whilst it would be an exaggeration to call the trend a 'flight to safety' it was certainly a sign that there are still plenty of niggling doubts to trouble investors. Despite all the public optimism that a double-dip recession is out of the question, the market mumbles to itself about the risk of just such an outcome.
As long as that mindset persists, national economic statistics and achievements will have to be spectacular if they are to offset investors' underlying attitude to particular currencies. This was clearly the case last week for sterling. The purchasing managers' indices (PMIs) are an important economic barometer, showing growth when they rise above 50 and pointing to a slowdown when they move below that level. Monday's UK manufacturing sector PMI came in at a surprisingly strong 56.7, beating equivalent figures from France, Germany, Switzerland and the Euro zone. With sterling in their bad books, investors refused to be impressed. At 54.5 Wednesday's services sector PMI was higher than any of the opposition but, because it was two points lower than the previous month, investors used it as an excuse to sell the pound.
Investors had to decide between grouping the Canadian dollar with the 'risky' Australian and New Zealand dollars and the emerging market currencies (all of which took a hit) and the 'safe' US dollar. They decided on the former, for no particular reason, and so were relieved at the end of the week that they received some favourable data to justify their decision in arrears. Canada's economy created +43k new jobs in January, a net +40k in the last two months. The figures looked fantastic against the -170k jobs that evaporated south of the border over the same period.
Sterling's new technical weakness against the US dollar is influencing its position against the CAD, and not to the good. It has lost six cents in little more than a week and the long term lows are once again within its grasp. Buyers of the Canadian dollar should hedge 50% of their requirement and remain ready to cover the balance in case of emergency. It would be a good idea for them to have a word with their account executives and make their wishes clear, in order to avoid unpleasant surprises.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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