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Home Forex Check Forex Rate Pound Sterling: Government debt proves a burden
Pound Sterling: Government debt proves a burden PDF Print E-mail
Written by Mark Deans at MoneyCorp   
Monday, 23 November 2009 10:22
In this comment piece: Kiwi dollar wounded by opposition plans and important GDP data tomorrow and Wednesday.


______________

Two previously unknown rising stars found themselves out of their depth on Sunday evening. Their almost instant fame had left watchers astonished at how they had progressed so far, given their apparent paucity of talent.

They can't sing and their dancing leaves a lot to be desired. As for their appearance, whatever could they have been thinking, going on TV with haircuts like that? But enough of Herman van Rompuy and Cathy Ashton. The other tepid topic this morning is the changing face of retail and corporate banking in Britain. Cheque books are out and ATM fees are in. The Confederation of British Industry believes companies will move away from using banks for finance and funding, just as they have done already with their foreign exchange needs.

Richard Lambert, the CBI director general, also thinks that 'what we need now is a more balanced, less risky pathway to growth, one in which the short-term returns may be lower but the long-term rewards for management success will be a lot more sustainable and secure.'

The tone of the CBI conference, which opens today, is likely to be guardedly positive about the UK economy, a mood not apparently shared with investors elsewhere. On Friday the Pound Sterling remained under pressure as a result of Thursday's disappointing - alright, rubbish - monthly figure for public sector net borrowing.

Pound Sterling knocked on retrospective economic views


On Friday morning it had looked as though a complete absence of economic data would allow the major currencies to trickle quietly into the weekend. It did not work like that. With nothing else to distract them, investors continued to scratch at the budget gap sore. Sterling actually had a worse day on Friday than it did immediately after the figures on Thursday. One US cent, three quarters of a yen and the best part of a euro cent have gone out of the window since Friday morning and the pound is softer across the board, with one exception...

Just as investors spent Friday fretting over UK government borrowing, so they also spent the day nervous about the Kiwi dollar. Twenty years ago the New Zealand Labour party pioneered the idea of inflation-rate-targeting.

Apocryphally, the reserve bank governor's bonus depended on his ability to hit the required inflation rate. Now in opposition, Labour would rather see a stable exchange rate than stable prices. Most investors believe Mr Goff's heresy is no more than opposition posturing, especially as nobody can quite work out what the economic benefits of a static exchange rate might be. Even so, the possibility cannot be dismissed that a future Labour government could put Mr Goff's idea into practice.

Once again today, neither the Pound Sterling nor the Kiwi dollar should be too troubled by the economic data. New Zealand visitor arrivals were slightly down in October after a strong increase the previous month; there are no UK figures. The first estimate of Euro zone purchasing managers' indices should put all three (manufacturing, services and composite) above break-even but it will be the final figures next week that matter more.

Continued growth in Canadian retail sales ought to be at least mildly positive for the Canadian Dollar. US existing home sales will only have an impact on the Greenback if they are in tune with investor sentiment regarding the dollar.

The main driver today and tomorrow is likely to be third quarter gross domestic product.

Euroland and the States deliver Q3 GDP updates tomorrow and the UK revision comes on Wednesday. At least as important as the numbers themselves will be how well they compare to investors' expectations.

If there is no upward revision to the UK figure the Pound Sterling will again feel the heat.
 
Last Updated ( Monday, 23 November 2009 10:26 )
 

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