Currency Market Update From Moneycorp Foreign Exchange Specialists

Over the last three months the foreign exchange market has generated plenty of noise but hasn't thrown much light on relative currency values. From sterling's point of view in late February, nothing has really changed from its position in late November against the euro, the Australian dollar and the Canadian dollar. The pound has strengthened by three yen, four US cents and six New Zealand cents. Among the major currencies it has only lost ground to the Swiss franc where it is down by six cents.
The Swiss franc's gains are down to nervousness among investors. They worry about Portugal going down the same path as Greece and Ireland moving towards sovereign bankruptcy. The recent bond auction in Portugal will be the last, the next step will be cap in hand to the IMF and nobody really wants that
And they are worrying now about Australia and New Zealand. The pound has achieved a substantial recovery this year against the Aussie and Kiwi dollars following natural disasters there; flooding in Australia and earthquakes in New Zealand. It looks as though both countries' economies will stagnate in the first part of 2011.
Concerns about America are more entrenched. By the end of its 'quantitative easing' programme, the Federal Reserve will have printed some 2.6 trillion dollars. What happens when it stops the printing in June? Will the States follow Greece and Ireland into receivership? Maybe not, but the unease lingers.
Sterling is currently feeling the benefit of investors' belief that interest rates will head higher this year. The Bank of England argues, perfectly reasonably, that at least half the current 4% inflation rate is down to two things: high oil prices and January's increase in the standard rate of VAT. Critics say the Bank is neglecting its duty to keep inflation at 2%. The pressure on the Bank to be seen to be doing something is growing. It looks likely that rates will go up this year though not by much and that the anticipation should support sterling.

Finally the worry now is about the rash of revolution spreading across North Africa and the Middle East. The potential impact upon global economies if we continue to see oil price increases although thankfully as I write the oil price has shown a slight decrease.
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