FX Market Overview
 
How precious have we become when plans to make offenders wear brightly coloured vests with “Community Payback” blazoned across them are criticized because they may place offenders at risk? If the prisons weren’t so full, many of these offenders would be locked-up ensuring the general public weren’t put at risk.  Whose interests should we be protecting?

The pound has started this week on the back foot after a strong run higher on Friday. October Bank of England mortgage approvals fell to the lowest level since this series began 10 years ago, while UK November manufacturing shrank at a record pace with orders for manufacturing goods collapsing to a 16 year low. All a bit negative for sterling I am afraid, raising the chances that the pound's two-week rebound against the US dollar and euro has come to abrupt end.

The news out of Germany this morning was no better though with October retail sales falling -1.5%, much worse than the expected +0.5% rise. In other bleak news new German manufacturing orders for plant and machinery fell 16% on the year, a clear indication that exports and GDP growth in Europe’s largest economy are in big trouble.

In the US early results suggest Black Friday (the day when the ink in US retailers books normally changes from red to black) was a success. Store and online sales both rebounded as shoppers took advantage of pre-Christmas discounts.

The Royal Bank of Scotland (now majority owned by the UK government) promised to give at least six months grace for homeowners who fall behind in their mortgage payments. Hopefully other banks will follow to alleviate the record number of repossessions and mortgage defaults which are expected to surge.

European Commission President Jose Manuel Barroso on Sunday claimed that the UK were more likely to join the euro as senior political figures had confided with him that they felt the UK would have been better off to handle the financial meltdown had Britain adopted the euro. What a load of rubbish this is. Ask Ireland, Italy and Spain how good it is to be a member of the Eurozone at the moment and I guarantee they wouldn't share Happy Jose’s enthusiasm. Actually ask the French government who are furious after the European Commission blocked the bail-out of Frances six main retail banks in the weekend.

This week is significant due to interest rate announcements from four major central banks. The Reserve Bank of Australia is likely to cut interest rates 0.75% tomorrow, the Reserve Bank of New Zealand are forecast to cut interest rates 1.50% Wednesday and the Bank of England and European Central Bank are likely to cut rates by 1.00% and 0.75% respectively on Thursday.

And finally if you think driving standards in the UK have dropped, take your life into your own hands and go driving in Malaysia. A driving theory test on 400 Malaysian driving instructors resulted in 65 per cent of them failing. At a training seminar 396 instructors were asked to take the exam and only 35 per cent passed. Hopefully the Malaysian Ministry of Transport will make the failed instructors re-sit the driving test wearing bright-orange vests with “Community payback” on them.
 
 
Currency - GBP / US Dollar

The pounds 30% decline against the US dollar has been widely publicised in the press and for dollar buyers the collapse in the pound has seemed like a one-way street. We have seen a number of small rebounds the last one being a 10 cent push up toward $1.55 over the last two weeks. $1.55 is an important resistance or ceiling and the failure to break above here late last week raises the probability the pound will resume it's fall lower. A 4 cent fall in the pound this morning may well turn into a 10 cent fall to test the previous low at $1.45 - be careful.

Traders turn their attention to the Bank of England (BOE) interest rate announcement on Thursday where the general consensus is for a 0.50% interest rate cut from 3.00% to 2.50%. We think the risk for the pound is on the downside as we feel the BOE will cut by a full 1.00% to 2.00% which will put further pressure on sterling.
 
 
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How is education supposed to make me feel smarter? Besides, every time I learn something new, it pushes some old stuff out of my brain. Remember when I took that home winemaking course, and I forgot how to drive?  Homer Simpson
 
 
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