The British Pound Runs Aground
After this week's panic driven trading sessions, Sterling has come under particularly sharp downward pressure. It has touched 35-year low versus the US Dollar is now at its lowest level since 2008 against the Euro.
The current bear market has also seen major sell-offs in other asset classes, including bonds and commodities, Asian equity markets are again down around 1- 2%. However, there were some signs in Asian trading of government bond markets stabilising.
This stability follows announcements from most major Central Banks of measures they are taking to shore up their domestic economies. The ECB pledged €750bn of asset purchases of public and private securities. The US Fed launched a programme to support money market mutual funds. The Bank of Japan promised an additional Y1.3trn of asset purchases. The RBA cut Aussie policy rates to a record low of 0.25% and initiated asset purchases.
THE DAY AHEAD The Swiss National bank may be the next central bank to move. It was part of the co-ordinated move to shore up international dollar swap lines but otherwise has been slow to act. That may reflects its lack of options with interest rate at - 0.75% but has helped push the franc to a 5-year high against the euro. An interest rate cut is possible although many analysts expect them to be unchanged. However, measures to boost liquidity are likely such as a possible resumption of repo transactions and a funding for lending scheme. Only the timeliest of today’s economic data releases are likely to get any attention.
In Germany, the IFO institute will issue a first estimate of its economic climate measure for March. The ZEW survey earlier this week pointed to a sharp weakening in both current economic conditions and expectations in Germany. However, that is a poll of financial analysts so the IFO survey which talks to companies across the economy should be a more reliable gauge. The readings will only reflect conditions until about the middle of the month since when further restrictions on activity have been put in place.
In the US, the Philadelphia Fed manufacturing index for March will also provide a timely update. Its New York equivalent showed a big deterioration in conditions this month. The Philly measure is very volatile and so is not the most reliable of indicators but it is also likely to have weakened sharply. It also will only measure activity up until about the middle of the month. The only other date of interest are US Weekly Jobless Claims. These are currently exceptionally low reflecting the tightness of the labour market but they will be watched for signs that conditions could worsen very rapidly in the coming few weeks.
See you next week!
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None of the information in this article is, nor should be construed as financial advice. All foreign exchange transactions involve risk and you should always seek your own independent financial advice before entering into any foreign exchange transaction.