ECB Cut

The euro rose to 160.69 yen from 160.27, reaching a six- week high, as the Munich-based Ifo institute said its business climate index rose to 104.1 in February, from 103.4 in January. The median estimate in a Bloomberg survey was for a drop to 102.9. After the report, traders pared bets the European Central Bank will lower its target from the current 4 percent level.

The German confidence report underscores the euro zone is holding up reasonably well in face of a U.S. slowdown,'' said Stephen Malyon, a currency strategist at Scotia Capital Inc. in Toronto.

The odds of the ECB lowering borrowing costs fell, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.16 percent. The yield averaged 0.18 percentage point more than the ECB's benchmark from 1999 until August. A basis point is 0.01 percentage point.

Rand Rally

South Africa's rand climbed 1.4 percent to 7.5581 per dollar, the biggest advance since Feb. 1, as the continent's biggest economy expanded an annualized 5.3 percent in the fourth quarter, from 4.8 percent in the previous three months. Growth was expected to slow to 4.4 percent, the median forecast in a Bloomberg News survey.

The U.S. currency began to decline earlier as a government report showed producer prices rose 1 percent in January, after a 0.3 percent decline the prior month, and more than double the median forecast in a Bloomberg survey.

Higher inflation coupled with slower growth is not a recipe for a stronger currency,'' said John McCarthy, a director of currency trading at ING Financial Markets LLC in New York.

The S&P/Case-Shiller index of home prices in 20 U.S. metropolitan areas fell 9.1 percent in December from a year earlier, the most on record. The Conference Board's index of consumer confidence fell to 75 from 87.3 in January.

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Many Ex-Pat's Are Caught Out By The High Cost of Buying Euros

Over the past ten years, the number of expats buying homes overseas, whether for retirement or as a second home, has boomed. The popular destinations for many overseas home owners have been Spain, Portugal, Ireland and eastern Europe with many people taking out mortgages in these countries. However, with the Euro so strong at the moment against many other currencies this has placed an unexpected burden on your average home-owner.

The poor exchange rate has added up to 15% on the cost of their mortgage and, with no end in sight, many ex-pats are waiting as long as they can before buying Euros to send overseas to pay their Spanish mortgages. For the retired ex-pats living on a pension then this situation is made worse with pension payments also being affected by the current cost of buying Euros. The situation could get even worse if countries like the UK continue to lower interest rates.

The ECB has given mixed messages about the future of the interest rate in Europe but one thing is for sure, any further rises will kill the overseas property market stone dead and, for many, the dream of retiring to the sun will be further out of reach than ever.

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BoE Fears Largest Ever Peacetime Liquidity Crisis

The Bank of England's Deputy Governor today warned that the ongoing credit crunch had left the Monetary Policy Committee uncertain as to its next move as it and fellow central banks face up to what she described as the "largest ever peacetime liquidity crisis".

Rachel Lomax, the BoE deputy governor addressing the Institute of Economic Affairs, Rachel Lomax said that the credit crisis that erupted last summer was still evolving, with a new problem surfacing on a weekly basis. She said: "Each week seems to highlight some new dimension of the ensuing disruption to core financial markets. "Clearly the situation is still developing. And its impact on the wider economic outlook - global and domestic - will depend critically on what happens from now on. Here there are some major uncertainties."

Ms Lomax said that while a correction of the financial markets, after a prolonged period of "plentiful liquidity" and insufficient risk management, had been expected by the Bank, the timing and extent had not. It was, she said, impossible to predict how much the value of assets beyond sub-prime mortgages would be impaired after this particular cycle had run its course.
advertisement "Many people - including the Bank of England - foresaw that some form of correction in financial markets was highly likely, even inevitable. "But it was another matter altogether to predict the precise nature and timing of the present crisis. The extent of the reverberations across different markets was certainly not fully appreciated," she said.
She reiterated the comments Governor Mervyn King's made in the Bank's quarterly Inflation Report two weeks ago, in which he warned that rising inflation was likely to prevent the Monetary Policy Committee from slashing interest rates. The risk, she said, was that a short-term spike in inflation caused by higher energy, food and import prices, will lift inflation expectations and therefore affect the medium-term behaviour of price and wage setters.

That, in turn, would limit the Bank's ability to cut interest rates as much as it would like in order to try to restrict the downside risks to growth. Explaining the balancing act she said: "If price and wage setters do recognise that the imminent pick-up in inflation will be short-lived, then the implications of the spike for monetary policy, and for the necessary balance of demand versus supply, should be limited. "But if price and wage setters start to expect higher inflation to persist, then the Committee will need to restrain demand, and so generate some slack in the economy, in order to bring inflation expectations, and inflation itself, back down."
The dual considerations of a downturn in growth and rising inflation were echoed in the CBI's latest Distributive Trades Survey out today, which said that while high street spending had slowed gradually since last April and was "very subdued" this month, prices have risen strongly.

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New Zealand Dollar 22 Year High Looms

Can the New Zealand Dollar Sustain Its Rally Beyond A 22-Year High?

Extending its impressive rise for the eighth consecutive trading day, the high flying New Zealand dollar has hit a 22 year high above 81 cents. This is the first time that we have seen the currency trade at these levels since it was freely floated in 1985 and the most bizarre part of the move is the fact that it was not driven by any economic data or news.

Compared to the rest of the world, the New Zealand economy is holding up well but unlike Australia, there are chinks in the armor. A drought in much of New Zealand has spurred a dairy price boom but in the long term, droughts pinch supply which hurts the economy more than it benefits it. With no economic data released in over a week, yield, risk appetite and commodity prices have been the primary catalysts for the latest move. Can the New Zealand dollar sustain its rally beyond a 22 year high? Will the RBNZ intervene again?

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ForexGen Introducing Brokers ,White Label and Money Manager holders are recognized as a strategic business partners. The main focus of our service is to satisfy our partner's needs in order to deal with a qualified service and gain a large income sharing plan.

[ForexGen] provides appropriate services satisfying the needs of all business partner's specified situation and requirements.

British Pound Rally Getting Tired?

Yesterday was a quiet day for the British pound with only one significant economic indicator released, BBA loans for house purchase which increased to 44288 from previous results of 42088.

Hometrack house prices also increased 1.4 percent, but this was the lowest yearly rise since April 2006. Today the UK economic calendar is light with only the CBI distributive trades survey due for release. This indicator is generally a good barometer for retail sales which means that it could cause some action in the British pound. However the rally in the currency is looking tired and it will be interesting to see if the move will continue. This week we have a lot of potentially market moving UK economic data so stay on top of the data calendar.

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UK Pound Drops to Record Low Against Euro

UK pound falls to record low against euro on gloomy economic forecasts

The British pound fell to a record low against the euro on Monday, flirting with one pound per euro as two gloomy economic forecasts stoked expectations that the Bank of England will make further interest rate cuts next year.
The pound fell to just euro1.022 Monday, its lowest since the euro's 1999 launch, after reports predicting unemployment will rise and house prices will fall in 2009. Those downbeat reports led currency traders to bet that the Bank of England will cut interest rates further early next year.
The rapid decline in the value of the pound, which has now fallen by around 13 percent against the common European currency this month alone, is making life tougher for British tourists -- many of whom are already getting just one euro for each pound.

For instance, the Travelex foreign exchange company was on Monday selling euro1 for exactly 1 pound at its online store, where tourists can order foreign currencies for pickup in the company's outlets at tourist locations like airports.
The pound is being driven down by expectations that the Bank of England will cut interest rates to stimulate the economy, which shrank by 0.6 percent in the third quarter, and looks like it is heading into a serious recession.
Interest rate cuts can weaken demand for a country's currency by reducing the yield on interest-bearing investments.

On Monday, Hometrack housing researchers said house prices fell by nearly 9 percent in 2008 and predicted that they would fall further next year. At the same time, the Chartered Institute of Personnel and Development predicted that employers will lay off at least 600,000 people in Britain next year, making 2009 the worst year for job cuts since 1991.
"We all know that the economy is full of bad news for 2009 -- jobs are going to be scarce, GDP is going to fall, and inflation could drop below 1 percent," said James Hughes, a currency analyst with CMC Markets. "And so, we're expecting an interest rate cut of 50 to 100 basis points in January or February." In financial terminology 100 basis points is a one percentage point.
The pound has fallen by more than 25 percent against the euro this year as the Bank of England has lowered interest rates from a peak of 5.75 percent to a more than 50-year low of 2 percent.

Interest rates in the euro zone remain higher at 2.5 percent, despite a 0.75 percent cut by the European Central Bank earlier this month.
The lower pound raises costs for Britons when they travel to the 15 countries that use the euro, and raises the price of imported goods.
Exporters, who usually benefit from a lower currency, are not getting much help from the pound's decline because the global economic slowdown is leading to weaker consumer demand in Britain's major export markets of the United States and Europe.
The pound was little changed against the U.S. dollar on Monday at $1.4598. At this time last year, 1 pound would buy more than $2.

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Euro Could Gain This Week, But Long-Term Outlook Remains Bleak

Fundamental Outlook for Euro This Week: Bullish

- ECB Governing Council Member Nowotny says he can’t rule out further rate cuts

- The Euro-zone's current account deficit narrowed to 6.4 billion euros, thanks to lower oil prices

The euro spent the majority of the past week consolidating versus the US dollar between 1.3915 and 1.4125, and these levels remain the proverbial lines in the sand, as a break above or below the bounds will suggest that price will continue to move in that direction. However, given the pair’s slow and steady climb from the December 19 low of 1.3826, it seems more likely that the EUR/USD rally could extend beyond 1.4125 toward 1.4300 once volumes pick up again.

From an event risk perspective, there’s nothing on the euro’s side of the coin to prevent such a move. The only indicators due to be released include the Purchasing Managers’ Index results for the Euro-zone’s retail and manufacturing sectors, both of which are anticipated to reflect the worst conditions on record. Nevertheless, these do not tend to be very market-moving for the euro, leaving technical analysis as a better method to use this week.

In coming weeks, though, traders should keep in mind that the European Central Bank is still anticipated to cut rates yet again on January 15, as Credit Suisse overnight index swaps are pricing in a 50bp reduction to 2.00 percent. The fact of the matter is that price growth has slowed dramatically and recession is plaguing the Euro-zone’s biggest economies. While credit conditions have improved in recent weeks, the potential for instability still lingers and the ECB may want to confront this head on with more accommodative monetary policy. As a result, further gains in the currency should be heeded with caution.

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