Last week’s data was lively enough to cause significant volatility. The surprisingly strong UK inflation combined with lacklustre jobs growth and a snow blighted December retail report to keep Sterling traders on their toes. Whilst we are starting to see earlier interest rate hikes factored in for the Pound, the poor employment data may make that happen later than May as so many forecasters have predicted. Sterling ended the week in a better position against the US Dollar and the Australasian Dollars but lost ground against the Euro. This week’s major highlights are the release of the Bank of England minutes and the Quarter 4 economic growth data. Both are potentially trend altering

The Euro’s strength came after a record high in the German business sentiment report and another bout of well received bond auctions. Traders are also expecting today’s industrial orders data to be strong. Even the European Central Bank’s monthly bulletin was more upbeat than many had expected. The result was a recovery in the Euro which picked itself up off the floor but barely made it above the skirting board before sellers came back into the fray. We start this week with the Euro at the top of its recent ranges against the Pound and US Dollar but not managing to break out of those established constraints. Other than business and consumer confidence indices, there isn’t a lot on the Eurozone data diary this week so the influences on the Euro are likely to be external.

The diary does though include the release of the minutes from the last Bank of England meeting which will be minutely examined for signs that their resolve to keep interest rates at record lows may be slipping. We will get the US interest rate decision; no change is forecast here but there may be a bit of coded warning that the loose monetary environment cannot continue forever; in plain speak, interest rates will have to rise and/or the expansion of the money supply will have to be reined in.

Overnight news that Australian producer prices rose slower than expected and a warning from the Australian Treasury Minister, Wayne Swan, that the country faces an enormous impact from the floods, combined to weaken the Australian Dollar this morning. We saw the NZ Dollar follow suit and push above NZ$ 2.10 at the interbank level for the first time in 5 weeks. The Interest rate decision from the Reserve Bank of New Zealand is this week’s major release as far as the Kiwi Dollar is concerned. We don’t expect the RBNZ to move interest rates at this point but they may start to shift in that direction so don’t be surprised if this morning’s top of the range for the Sterling - NZ Dollar exchange rate is the best of the week.

In an interesting aside to the Irish political storm, an online article by a chap called Mike Shedlock suggests Ireland has printed an extra €51 billion backed by so called ‘other assets’ in order to fund support and expansion programs. The problem Ireland’s government faces is that it really doesn’t have other assets worth €51 billion so this money is pure cash expansion. At a time when Irish banks are crying out for further funds but lack the collateral to support such funding, this may well prove to be the undoing of the Irish economy and - dare I say it - another nail in the coffin of the Euro. I suspect the story will grow.

And finally, ex Prime Minister Gordon Brown is now wondering whether his phone calls were also hacked by the News of the World in the scandal that brought down Andy Coulson the first time. It may be an opportune time to stick another knife into the former Tory party head of communications but I don’t think the press needed to hack G Brown did they. Just leave a mike on him when he departs a press conference and he will do all the work for you. Or am I being bigoted?


Deep thoughts on a Monday morning

“The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth.”
Niels Bohr