By DAVID JOHNSON
David Johnson is a Currency Dealer with Halo Financial Ltd, delivering competitive exchange rates and a personalised service to help private clients throughout Europe save time, money and hassle on their foreign exchange.
It seems only fitting that having become a ‘lame duck’ president, George W Bush should blame his electoral disaster on a guy called Donald. Poor Donald Rumsfeld took the blame for the War in Iraq, the fact that George W Bush can’t make a speech without mentioning the word “Terrrist” a dozen times and so, had to go.
The president’s problems aren’t over though and he seemingly can’t do a thing for the rest of his two-year term other than wreck the policy suggestions put forward by the Democrats. The financial markets are delighted. That may be an odd reaction (or maybe quite understandable dependent on your view of Bush), but there seems to be a mood that ‘no change is good’ when it comes to the plans that both the Republicans and Democrats have in store for the US economy.
Contrary to many forecasts, the US dollar actually entrenched its position against the euro and the pound and even managed to gather some strength in the wake of the mid-term election results. That may be because things are a little uncertain on this side of the Atlantic as well.
Interest rates are dominating traders’ thoughts at the moment and the Bank of England (BoE) and European Central Bank are giving them enough to consider. In Europe, German retail and manufacturing numbers are creating a drag on the euro, but the single currency is still making headway against the US dollar on the back of burgeoning money supply, which is fuelling speculation that Eurozone interest rates will have to rise again before the end of the year. Inflation is still largely in check, but the growth of credit is a worry for the European Central Bank and they may be forced to tighten the money supply through higher interest rates just to ensure things don’t get out of hand.
West of the Channel, things are equally tentative with the BoE hiking its interest rate by 0.25 per cent on November 9, at a time when personal bankruptcy is running at an all time high and is already 55 per cent up on the year. The last decade has brought a huge expansion of UK consumer and home related debt and that needs to be kept on a tight leash before it generates a bust after the housing market boom. The potential for higher yields is keeping international investors interested in the pound and with the UK yield being higher than that of the Eurozone, the balance of investment flows slightly favours the pound. However, having hikes in November, the BoE may well pause for thought and that will allow a slide in the pound.
It would be an odd outcome if neither the UK, EU nor US interest rates moved. The general perception is that the EU rates are on the rise, but the US and UK rates should remain on hold for some time to come. That would suggest the US dollar and pound should decline and, I am sure they would, but for the rallying equities markets in the US fuelled by a lame duck government.
So, the path for the coming months would suggest that a slide in the pound is on the cards especially against the US dollar and euro.
What a contrary world we live in where impotent government is seen as positive for the most influential consumer economy in the world and where poor economic data in the largest economy in the Eurozone is overlooked in favour of a decision which appeases the rest. I now realise why I avoided a career in politics.
David Johnson can be contacted on ++ 44 (0) 207 350 5474 or via e-mail on [email protected]
