Currencies Direct Reviews Quarterly Inflation Report and Australian Economy

12, November 2009

Yesterday sterling weakened after the release of the Quarterly Inflation report and the accompanying speech by Mervyn King. The feedback from King was actually not too bad when taken into context over the last six months; inflation was earmarked to rise and growth forecasts were upped. The reason why the pound weakened was related to the Bank keeping an “open mind” on further Quantitative Easing and also noting that the weaker pound is a key driver for the UK economy.

It seems the Bank is still treading tentatively and is taking no chances. We have little data for the rest of the week for sterling; sterling has held firm after falling yesterday holding above 1.10 against the euro and 1.65 on the USD The market will want to see continued improvements in economic data following small improvements in manufacturing, jobless claims and housing data.

This morning EUR/USD has failed to hold on to the key 1.50 level falling to 1.4950; 1.50 is a stubborn barrier that the euro cannot seem to push through with strong support for the USD at this level. This move has allowed sterling to creep higher against the euro towards 1.11 but I would expect range trading on EUR/USD and a possible re-test of 1.50.

In other news the Australian economy is still driving forward with the unemployment rate holding at 5.8% but with 24,500 new jobs created raising the chances of another 25 basis point rate rise. This puts the Australian economy well ahead of the curve and naturally the AUD has strengthened on the improved sentiment and the recent rise in interest rates. Eurozone data just released confirmed a fifth consecutive increase in Industrial production by 0.3%; later European Central Bank president Trichet will speak later in Frankfurt.

Speaking in Singapore U.S Treasury Secretary Tim Geithner has again reaffirmed the importance of a strong dollar and also a stable USD. In addition he also noted that Asia and in particular China will play a major role in leading global recovery. The importance of a strong and stable dollar are key to global economies; Singapore and Indonesia, Malaysia and Taiwan among others need to regularly buy USD to keep their local currencies from strengthening too much against the USD.

Report by Phil McHugh

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Compiled by Tom Nadir.

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