USD weakening but GBP is weaker
The dollar has, after yet another poor performing week, pulled back a cent against the Euro in trading overnight and into this morning. There was some disappointment on Friday that Federal Reserve Chairman Bernanke didn’t more explicitly allude to the possible size of QE that the FOMC may relaunch, though that was probably always unlikely, and Bernanke left the door open for a more gradualist approach to QE augmentation – though most likely still starting in the November meeting. With the long protracted saga of the Liverpool FC takeover finally concluded, John Dubya Henry may be getting a little nervous over the number of Dollars he’ll need to turn into £300m, which has increased steadily over the past month. Having said that, after the pitiful performance of his new purchase yesterday (much to the delight of the blue-nosed author of this commentary), turning water into wine would seem a more apt metaphor for the exchange concerns facing him, and as central banks globally debate arguments for and against creating new waves of money out of thin air, he’ll be envious of the very option to do so (despite his disdain of leveraged finance) given the evident need for it in the current squad.
The Dollar did have a temporary spike downwards during Bernanke’s speech on Friday as he seemed to indicate that the Fed viewed additional easing as necessary, but this was short lived as he failed to back it up with anything more concrete, leaving the markets again second guessing the Fed at their next meeting on November 3rd. This did, however, provide the catalyst for a small piece of history, with the USD and AUD hitting parity for the first time since 1984. Though this was short lived, it was almost inevitable in a market that has been punctuated by USD weakness and strength in the commodity currencies, with ever increasing demand in their goods from the likes of China and other gargantuan recipients of their products.
In the UK it’s a busy week for data, with the CBI industrial trends survey, the public sector borrowing data and retail sales all published. Event-wise, we also get the October minutes of the MPC meeting, and these will be interesting to see if Adam Posen voted for an extension to QE, and whether the tone of the minutes suggests he got a sympathetic hearing. The key political event of the week is the publication of the Comprehensive Spending Review. To a large extent this exercise is filling in the detail of the June Budget, and is of secondary interest for the market. Nonetheless it will set the political tone and direction of the country for the next year at least.