Factions within the euro zone on what assistance Greece will receive, and from whom dominated the day’s trading spurring a decline in the euro, and sending European equity markets off a touch also.

While Germany are in favour of involving the International Monetary Fund (IMF) in a package to support the indebted nation, EU president Jean-Claude Trichet, and French president Nicholas Sarkozy are among those vocal about solving the problem within the EU, commenting a failure to do so would show the EU can’t solve its own crisis.

Greek Prime Minister George Papandreou spoke yesterday in Brussels, also outlining his support for an EU based assistance package to deal with a mountain of upcoming debt, with 10 billion Euros required to be raised before the end of May to pay for debt falling due. Until a concrete resolution is reached we would expect the euro to remain on the back foot.

US inflation arrived with no rise in consumer prices over the month of February, underpinning expectations that the Fed would keep interest rates steady over the coming months as outlined in their statement days ago

Public Sector Net Borrowing figures arrived better than expected giving the pound a little boost in the morning session, still arriving with a dire figure of a £12.4bn deficit for the month of February.

The data calendar is particularly light today so once again the focus will be pointed towards European policymakers, any hint towards a solution will no doubt have an impact on the markets

You can download the podcast from here

If you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

Unemployment figures and favourable minutes from the last Bank of England meeting spurred another day of recovery for sterling, putting some daylight between its recent lows against the dollar and euro.

The monthly unemployment figures from February of a decrease of 32K revealed the fastest rate of decline in over a decade. While the January figure was revised backwards, it was generally a positive reading, sparking some flow back into the battle weary pound.

Further support for the pound arrived in the Bank of England minutes, which showed that the committee were beginning to worry about the constant threat of inflation following recent relatively hawkish figures. The fear of further falls for sterling pushing inflation higher saw the MPC break rank from the usual welcoming tone regarding sterling’s decline.

The euro’s cause was dampened after German Chancellor Angela Merkel announced that Greece should use funds from the International Monetary Fund (IMF) as a source of aid if needed, pouring cold water on recent talks that a euro centric agreement will be reached.

Japanese authorities were not sitting idle themselves, doubling their loan program to ¥20,000bn. The program, aimed at countering inflation and boosting credit development within the troubled nation, sent the Yen lower and helped drag the dollar along with it.

Today public net sector borrowing figures (9:30) may disrupt sterling’s momentum, with Euro trade balance (10:00) and US CPI inflation figures (12:30) providing a balanced mix of data

You can download the podcast from here

If you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

·         Fed to keep rates low for ‘extended period’

·         Conservative lead widens, sterling gains

·         S&P reaffirm Greek debt at BBB

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

Sterling vs. the dollar has risen to a 2 week high overnight as traders were forced to cancel bets that the Fed would raise interest rates in the US sooner rather than later. The dollar lost ground also against the euro and other G7 currencies.

Ben Bernanke and the Fed maintained the line of keeping rates ‘exceptionally low’ for an ‘extended period’. Some traders had expected the committee to make some more hawkish noises as the pace of recovery in the US picks up but it wasn’t to be.

As a result GBP/USD hit a high of 1.5267 while EUR/USD peaked at 1.3815

Sterling had a good day on its own yesterday as an independent poll showed a Conservative party lead re-emerging. The market is still fearful of a hung parliament and will continue to be until we go to the polls so volatility in all sterling crosses are assured as we head towards May 6^th.

The euro too had a good day as the ratings agency Standard & Poors gave a Greece a boost as it re-affirmed their BBB credit rating. As a result the yield on Greek debt fell as did the price of insuring the debt against default. There was some disappointed noises however as there was no specific pledge of aid to Greece from the remaining members of the EU. Papandreou said it was “a step forward, but it’s not enough”. The cost of Greek debt is still high and still needs to be reduced for Greece to be able to fund it.

Today is full of UK data. Firstly we have the minutes from the Bank of England’s latest meeting. This should be a unanimous vote for holds on both the interest rate and QE; any deviance from this may see sterling fall off. We also have UK unemployment data at 09.30.

This is my last update for a week and Rick will be taking over in my stead.

Click here to see the latest exchange rates

In order to assist bankers and City workers, World First representatives handed out free dollar bills to those arriving at work. Attached to the dollar bills were flyers outlining tips on how they can best manage their foreign currency exposure resulting from bonus, salary and proceeds from stock paid in foreign currencies.

Elisabeth Dobson, head of private clients at World First said, “At the start of each year we speak to many bankers who know they will receive a cash bonus or proceeds from vested stock in a foreign currency and need to convert it into another currency. For example, a number of US banks  will pay some cash bonuses and issue stock in US dollars and some European Banks will pay bonuses and issue stock in euros. Staff based in the  UK will choose to convert these into sterling and will look to hedge their exposure to exchange rates using forward contracts and currency options. Equally we have a large number of clients converting their salary payments to countries outside the UK or they might receive their salary in euros or dollars and will look to convert this into sterling.”

The beginning of the year is typically when annual bonuses are announced and when those with vested stock can decide whether to exercise and cash in their stock from previous years’ bonuses. It is usually between January and March that employees will receive their cash bonuses or have the right to exercise their vested stock.

Elisabeth added, “Many bankers have been keen to talk about our currency option structures.  They are like forward contracts, in that you can secure an exchange rate now for a date in the future, but they also allow you to benefit from any improvement in the rate.”

As well as bankers and City workers looking to convert US dollars and euros we have also had a larger number of clients who receive sterling bonuses looking to invest overseas, buy a second home or holiday home, pay off an overseas mortgage or convert and send funds back to their country of origin if they are living in the UK.

For more information on hedging salary or bonus payments click here: worldfirst.com/bonus

Yesterday’s RBA minutes provided vital insight into the March board meeting and the ongoing pressure on interest rates. The minutes noted that local economic data took precedence over sovereign debt concerns in Europe and that local growth has ensured pressure has remained on the RBA to implement tighter macroeconomic policy. The well-balanced commentary ensured that there was a relatively muted response from the market however. In the next two weeks any press releases from the RBA will be key in signalling the pressure on them to hike in April however it is likely to be less hawkish than usual with the March minutes stating that they will raise rates “gradually towards more normal levels”. The coming week should also highlight the extent of the current long positions on the Aussie.

The local economic data was largely mixed, however after factoring the March RBA rate hike, the data was broadly supportive of a strengthening economy. Unemployment was marginally higher at 5.3% however the Consumer Inflation Expectations at 3.2% didn’t change from the previous month and the Westpac Consumer Confidence figure of 0.2% was up. Last week’s Home Loans figure of -7.9% was the first key piece of data to remove the momentum from a particularly strong round of releases.

Over the last week there has been further signalling from Europe that Greece will not default on its sovereign debt which has reduced the risk of a “double-dipped recession” for the global economy and improved appetite for riskier assets. Currently there is significant pressure on Greek sovereign debt bond yields and an agreement this week by the member nations aims to improve sentiment and reduce that cost of debt. If this is not successful, the member nations will provide direct loans or EU bonds to Greece to ensure they can service their debt payments. Currently the program is not in place and ideally it will not be required. In previous recessions there have sizeable provisions for sovereign debt defaults such as those made by the US to Mexico in the so-called “Tequila Crisis” in 1994.

You can download the podcast from here

If you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

• Fears over hung parliament continues to damage pound
• YouGov shows Tory lead down to 4 points
• Fears over Chinese monetary tightening pushes stock markets lower
• Dollar supported ahead of the FOMC

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

We have warned since the beginning of the year that Monday trade for sterling is likely to be a painful experience and yesterday was no exception.

Sterling dropped over a percentage point against the dollar and by 0.75% against the euro as yet again another opinion poll suggested that the general election is likely to end in a hung parliament. Of course, this leads to the belief that no overall consensus in government means no clear decision making on fiscal issues and subsequently traders mark down the pound. We see no reason to change our wariness of Monday trade until after the election.

GBP was not helped by comments from Kate Barker, external member of the MPC, who warned that the UK may see another quarter of negative GDP before the year is out.

If sterling was the clear loser in trade yesterday then the dollar was the clear winner. Fears over monetary tightening in China (as explained in last night’s podcast) led to stock market falls around the world yesterday in turn strengthening the dollar. The greenback was also helped by a poor housing reading that saw risky assets slip further.

Today’s data highlight is the Fed decision at 18.15 GMT. The dollar is likely to remain supported as we head into the meeting although we expect no change in policy or language. We do expect that the lone dissenter from the previous meeting, Hoenig, will continue against the ‘extended period’ language. We also have German ZEW today which should show economic sentiment falling in Germany; a move lower for the euro as a result is expected. 

·         Fears over hung parliament continues to damage pound

·         YouGov shows Tory lead down to 4 points

·         Fears over Chinese monetary tightening pushes stock markets lower

·         Dollar supported ahead of the FOMC

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

We have warned since the beginning of the year that Monday trade for sterling is likely to be a painful experience and yesterday was no exception.

Sterling dropped over a percentage point against the dollar and by 0.75% against the euro as yet again another opinion poll suggested that the general election is likely to end in a hung parliament. Of course, this leads to the belief that no overall consensus in government means no clear decision making on fiscal issues and subsequently traders mark down the pound. We see no reason to change our wariness of Monday trade until after the election.

GBP was not helped by comments from Kate Barker, external member of the MPC, who warned that the UK may see another quarter of negative GDP before the year is out.

If sterling was the clear loser in trade yesterday then the dollar was the clear winner. Fears over monetary tightening in China (as explained in last night’s podcast) led to stock market falls around the world yesterday in turn strengthening the dollar. The greenback was also helped by a poor housing reading that saw risky assets slip further.

Today’s data highlight is the Fed decision at 18.15 GMT. The dollar is likely to remain supported as we head into the meeting although we expect no change in policy or language. We do expect that the lone dissenter from the previous meeting, Hoenig, will continue against the ‘extended period’ language. We also have German ZEW today which should show economic sentiment falling in Germany; a move lower for the euro as a result is expected.

The housing market has seen a bit of a recovery recently. Prices started to rise in the late part of last year as buyers snapped up bargains and supply began to open up. Prices in London in particular have snapped back to levels reminiscent of the early bubble days. Of course, given the correlation between the housing market and the overall mood of the public, a housing market uptick leads to increased confidence, spending and employment. The benefits are truly universal.

But fears over a double-dip in the market have, alongside other reasons, stymied the pound in recent weeks. The influential Ernst & Young Item Club have predicted that house prices will fall 1.4% over the course of 2010, the NIESR by just over 1% and they are not the only ones. Figures released overnight showed that prices in the UK rose by 0.1% in March, a record low for this time of year.

There is some good news for those moving within the housing market over the coming 12 months. Interest rates are likely to stay low for a good while now as the Bank of England and the financial sector as a whole try to encourage borrowing and consumer spending. We don’t forecast interest rates will rise in the UK past 2.5% for at least 2 years.

Mortgage approvals however remain depressed with January’s figures half those in December. Most of this can be blamed on the cessation of the stamp duty holiday with the largest falls seen in the £125,000 and £175,000 bracket; the traditional haven for first time buyers.

I doubt we will see housing strength in the UK in 2010 and the prospects for 2011 hardly look ideal. Sterling will have to wait for a while until it can rely on the housing market to help its progression higher. At least dinner will continue to improve.

Trade of the week

This week’s trade of the week is the simplest option available and therefore the hedge that gives the client the most freedom possible. The ‘Vanilla’ is the building block of the options world and is one of the most popular trades in the market at the moment.

The buyer of this trade is an importer based in the UK and bringing in goods from France and the Netherlands. He wanted to protect a GBPEUR rate of 1.08 for the next 6 months. The client believes that sterling will gain against the euro over the course of 2010 but must at least get a level of 1.08 to keep his margins unaffected. This cost the client only 0.75% of the notional amount (the amount hedged). For that he receives 100% protection at 1.08 and every piece of upside forthcoming i.e. should GBPEUR be trading at 1.17 on expiry the client would receive 1.17.

This offers the client the most amount of freedom to benefit possible while still being protecting a rate that benefits his business. This works on all currency pairs and is available to both buyers and sellers of sterling.

Have a good week.