Thursday, 02 April 2009 00:43

Snapshot of rate movements this morning:

• GBP/EUR +0.44%
• GBP/USD +0.44%
• GBP/AUD -0.05%
• GBP/NZD +0.25%
• GBP/CAD +0.06%
• GBP/ZAR +0.08%
• GBP/CHF +0.71%
• GBP/THB +0.32%

Sterling Gains
Sterling has gained against most currencies after better than expected manufacturing data yesterday, and also figures this morning that have showed a rise in UK house prices for the first time in ages.

The pound has risen against the US dollar and the Euro. The rate of decline in British manufacturing eased much more than expected in march, which is a possible sign that the very low interest rates might be having some impact. Where it has weakened the pound and lowered exchange rates, it has been good for some sectors in that it has made exports cheaper for overseas buyers, which is one reason this sector is doing better than expected.

Analysts said although the figures were an improvement and could be a signal of massive UK monetary easing taking effect, overall conditions for the UK economy remain very bleak indeed.

GBP EUR is now 1.0950 and GBP USD is 1.4527. This is much improved on where rates have been in recent times, and a great opportunity to buy at levels not available just a few days ago.

ECB Interest Rate decision
This will be announced today at 12:45pm. The ECB is expected to cut interest rates 50 basis points to 1% from the current 1.5%. They are under pressure to adopt a much more aggressive measures to try to boost EU growth and join other major central banks worldwide in expanding the money supply.

Until now the ECB have been reluctant to adopt quantitative easing and markets will be looking closely to see if that reluctance has diminished in any way. EUR remains vulnerable to ECB rate cut speculation.

This speculation has caused investors to start selling their Euros in anticipation of lower returns. This sell off floods the market and reduces the value of the Euro, helping to boost GBPEUR rates as explained in yesterdays report.

So, these current good buying levels for the Euro is due to good manufacturing data, higher house prices, and a weaker Euro due to todays expected cut. The economy is still in trouble though, so I dont expect these levels to sustain themselves for very long.

G20 Summit
President Obama arrived in London this week for the G20 summit which commences in earnest today. What is the G20? A good explanation can be found here.

Essentially, the G20 group of nations is made up of the world"s most powerful economies, accounting for 90% of the world"s economic output, 80% of world trade and two-thirds of the world"s population. It is a forum for cooperation and consultation on the international financial system. It looks at issues to do with the promotion of international financial stability. It"s being very closely watched at the moment as leaders thrash out plans to revive the world economy.

In the run-up to the summit, the main differences have been between France and Germany, who are seeking stricter regulation of the financial system, and the UK and US, who think extra government spending would do more to ease the crisis. Its not expected that a magic wand will be waived to save us all, and most actually expect some protectionism once the leaders return to their own countries, and concentrate on their own interests.

Its very unlikely EU countries will create money as the UK and US have done. I would expect some announcements to help boost trade, an increase in the IMF fund and more financial regulation. Whatever is announced it will likely cause volatility in exchange rates. Of course this blog will analyse the results and any effect on exchange rates.
Todays Data

UK - Natiowide and Halifax House Prices
PMI Construction Data

US - Jobless Claims
Factory Orders

EU - ECB Rate Decision
Trichet Speech (ECB President) - expect volatility in GBPEUR.

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