IFX Market Report - 25 November 2009

Tuesday morning saw Sterling suffer as investor Risk Aversion was evident, as concerns over the state of European banks were exposed.  This was highlighted as German regional bank WestLB had been seen to be struggling to secure funding. 

The UK relies on its financial sector to attract investment, and whilst the Banking sector state is poor, and ratings agencies have their eyes fixed on the state of major banks, investors will view Sterling as a risky currency, and will opt out of the pound.

This caused Sterling to fall as low as $1.6497 during the morning session, but later recovered slightly to $1.6556, which was 0.3% down on the day, thus backing further away from a 3 1/2-month high of $1.6879 hit last week.

Against the Euro we saw a day low at €1.1038 but an afternoon recovery to €1.1102.

BoE governor Mervyn King spoke out in the afternoon regarding this months 25bil increase in QE, by highlighting that there is much of a split decision between the policymakers, which was evident as the last QE meeting saw a 3 way split.  Some policymakers see the economy to be slowly recovering whilst some are cautious about the whether the current stimulus is enough.

This restricted Mervyn’s comments, as he failed to mention his overall verdict on which direction he thinks that the economy is going in.  This uncertain verdict will certainly weigh on Sterling, until some light is shed, as to where the BoE think that the UK economy is heading, and whether further stimulus is required.  King did however mention, that he did not see any immediate risk to the UK’s Triple-A rating.

This gives us no indication that the BoE will up interest rates any time soon, as they still have no certainty on what the future brings for the UK economy.  Preliminary figures in Business investment did not help confidence, as they showed a 3% drop between July-September.  Although mortgage approvals nearly doubled in October against the previous year, showing that low interest rates may have helped to stabalise the UK housing market for now.

Today sees a potentially volatile day in the markets especially, GBP/USD, as releases include Durable Goods Orders, Initial Jobless Claims, Personal Consumption Expenditures, Personal Income, New Home Sales and Consumer Sentiment Index from the USA. 

Whilst this morning sees the UK GDP revised figures from the 3^rd Quarter, which is expected to see a 0.1% improvement.

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