Currency Watch: a calm week for world markets

We are still waiting on the level of participation in the Greek debt swap to be made public. However, aside from some wobbles at the beginning of the week, no real fears have been evident that suggest it will not go to plan.

Data from the Eurozone has been poor of late, however, with PMI surveys from the continent adding weight to our belief that the recession in the Eurozone will not be merely technical, but that it could be more protracted.

Wednesday’s German factory orders were horrific, and they point to a real slow down in the factories of the Rhine – this correlates attractively with a falling euro, so further gains for the pound against the single currency could well be around the corner.

In the UK, the Bank of England decided to stick and not twist on either interest rates or QE. The Bank has decided to sit on its hands, for now. No change was expected this week, but the uncertainty surrounding what the MPC will do next is very real. The market is still not expecting any rate movement until at least next year, but committee debate on whether to add further asset purchases will increase through Q1.

Inflation remains above target levels in both the UK and Europe and expectations of price rises as a result of oil price increases are also moving higher. Interest rate cuts or further monetary policy loosening may need to wait as a result, although I believe we have seen a peak level in oil markets barring any actual conflict with Iran.

The end of the week also means a new publication of releases that have helped risky assets onward; US jobs numbers. The latest ADP employment report for February showed an expansion of 216,000 jobs and a similar increase is expected to show in this afternoon’s government jobs report. The saying always used to be that “if America sneezed then the world would catch cold”; the hopes are that the improvement in the US jobs market provides the opposite impact and warms the world economy instead.

Jeremy Cook is chief economist at World First foreign exchange

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