The pound reclaimed some ground against the euro and reached a two week high against the dollar yesterday but lost ground against high yielding currencies like the Australian dollar as risk appetite returned to the markets as the situation in Japan seemed to come under control.
The main event for the pound this week is likely to come tomorrow when both the minutes of the last Monetary Policy Committee (MPC) meeting at the BoE are published and Chancellor George Osborne presents his second budget since the coalition came to power last year.
European Central Bank (ECB) chief Jean-Claude Trichet issued another warning that the ECB is likely to increase interest rates in the euro zone as early as next month to combat rising inflation levels. His comments helped the euro trade higher against the US dollar and reduce its losses on the day against the pound. The euro reached above USD$1.42 for the first time since November 2010.
The G7 intervened in the markets for the first time in 10 years sending the dollar sharply up against the yen as central banks in Japan, Europe, UK, Canada and the US all bought dollars and sold yen as part of coordinated intervention to halt the speculative rise in the yen and facilitate the economic recovery in Japan.
The World Bank reported yesterday afternoon that it could take as long as five years for Japan to get back to where it was before the devastating earthquake and tsunami and the total bill could exceed £145 billion.
Likewise, military strikes on Libyan leader Colonel Gaddafi’s air capability pushed the price of oil above $116 a barrel when markets reopened yesterday giving rise to risk appetite and allowed worldwide stock markets to post decent gains.
Libya’s oil production has been cut from 1.6 million barrels to a mere 400,000 barrels a day. Although fellow OPEC nations have stepped in to fill the gap, analysts point to the extra refinery costs in processing Saudi oil which has a heavier sulphur content than Libyan oil and remarked that this could become a factor in the market if the Libyan situation persists.
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.”
