The pound continued to make gains across the board as the markets continued to take note of the best manufacturing data in the UK for the last 16 years and the euro zone sovereign debt crisis continues to rumble on.
The latest EU finance ministers meeting once again failed to take decisive action while Ireland saw the first vote of its austerity budget pass narrowly by 82 votes to 78. It now needs to pass another three voting hurdles to get passed into law. The 6 billion euro’s of cuts are part of a four year 15 billion euro austerity plan designed to bring the country’s deficit under control. If the rest of the budget is cleared by parliament, it will trigger the first tranche of bail-out funds from the EU and IMF. The IMF responded to the first vote by setting a board meeting for Friday to approve its loan.
The EU ministers failed to make any progress on the IMF backed idea of a euro wide bond and also rejected calls for the bail-out fund to be increased on the back of strong German opposition.
The pound has continued to remain resilient in the face of recent euro strength and in spite of disappointing industrial production data for October yesterday. This was more than offset with better than expected manufacturing data as well as quarterly GDP data from the (NIESR) National Institute for Economic and Social Research which came in at 0.6%, 0.1% better than expectations.
The US dollar rallied on the back of news that President Obama had agreed a deal with Republican leaders to extend former President Bush’s tax cuts for two years. The intention is to extend personal disposable income and thereby stimulate the economy.
More volatility is to be expected. On the one hand, commodity prices are reaching record price levels on an almost weekly basis driving risk appetite which should favour high yielding commodity driven currencies from Australia, New Zealand, Canada and South Africa. On the other hand, the sovereign debt crisis in the euro zone, the threat of a slowdown in China and mixed economic data out of the US all drive risk aversion and a flight to safety into the US dollar, Swiss Franc and Japanese Yen.
Interesting times!
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
