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February 2016

Daily Currency Insight

Published: Monday 15 February 2016

  • Presidents Day will leave US markets becalmed
  • Japan slips further into recession
  • Central Bankers are still driving rates
Another fantastic weekend of rugby and football was had by all. As an England rugby fan, I cannot hide my delight at the style England displayed in the latter part of the game on Sunday. Neither can I hide my concern about whether we will get that kind of chance against Ireland next week.  I have no doubt that, even without Paul O'Connell, "Shoulder to shoulder they'll answer Ireland's call."
 
As far as the markets were concerned, last week lacked data but had more than enough drama. Central bankers were in the spotlight for all the wrong reasons as the markets debated what exactly they can do to rectify the general slowdown in the global economy. The US Federal Reserve put interest rate hike ideas on hold – perhaps for the rest of the year. So too did the Bank of England and there were even hints that UK interest rates would have to fall before they could rise again.  The European Central Bank has very little wriggle room on this but is likely to make bank deposits more expensive to encourage retail banks to lend rather than hoard cash. However, stricter rules on reserve holdings make it hard for banks to do that.
 
The bankers' reticence is driven, in large part, by the slowdown in Chinese growth and the repercussions of that on commodities, export opportunities, investor sentiment etc. None of those fears have been diminished over the weekend which brought another drop in Japanese activity with a 1.4% decline in the GDP level on the year. That was nearly twice as bad as market forecasts and the Yen, which has been strengthening throughout February, dived in value on the news.
 
It is Presidents' Day in America and the first day back for many Chinese traders who have been partying for the New Year. So the week started in quiet reflection but the Pound has slipped in early trade. This is at the start of a week which will bring UK inflation, employment and government borrowing data which are all forecast to be a tad better for the Pound. Obviously the proof of the pudding....and all that but, having had a very bumpy few weeks, a period of recovery in the Pound's value would be calming.
 
This week also brings industrial production data from the UK, EU and US and a number of retail sales reports from these three and Canada. I have no doubt whatsoever that news from oil markets, equities markets and central bankers will help to keep things lively and so too will the wise and unwise words of central bankers. Hang on to your hollyhocks, as someone used to say. 
 

A few one liners to start your week

 
When any official form asks who is to be notified in case of emergency, I always write, "A very good doctor".
 
When it comes to multitasking; I have absolutely nailed it. I can waste time, be unproductive, and procrastinate all at once.
 
Team work = collective blame
 
I got fired from the advent calendar factory. That was unfair. All I did was take a day off
 
We live in an age where deleting history has become more important than making it.
 
Life is all about perspective. The sinking of the Titanic was dreadful for the passengers but freedom for the lobsters in the ship's galley.
 
Today it is easy to know who your real friends are because when you walk into their homes, your Wi-Fi connects automatically.
 
FX Research by David Johnson

Daily Currency Analysis with Michael Condron



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