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.
Starting from $1.5950 on Monday the pound had staggered a cent higher by Wednesday morning. From there it was downhill all the way to a low of $1.5550 as London got underway this morning.
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.
The US dollar, on the other hand, made the most of its safe-haven credentials. It could hardly put a foot wrong and, even when it did, managed to escape the consequences. Friday's US employment report was shining example. After two months in which analysts made a total-lash-up of their forecasts the consensus was that non-farm payrolls would have gone up by +15k jobs in January. The actual figure turned out to be -20k and a negative revision took the December result down from -85k to -150k. In net terms then, non-farm payrolls were 100k worse than expected. On any other occasion the dollar would have taken a pasting. This time it did not flinch.
Having spent the last eight months trading mainly between $1.58 and $1.68 sterling has been tipped out of the bottom of that range and its prospects are not rosy. Buyers of the dollar should increase their hedge to 75% of what they will need. If the money will be required in the near future they should consider covering the whole amount.
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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