February proved to be another uncomfortable month for Sterling as the US Dollar pushed the Pound below the key market level of $1.50. Both UK and US GDP figures for the 4th quarter of 2009 were revised up, 0.3% and 5.9% respectively – a clear indication of the rate of recovery in the US and the bumpy road ahead for the UK.
And so the Dollar remains in a strong position with traders buying on strong US fundamentals and buying even more aggressively as a safe haven play. Traders, frightened by continued concerns over Greek national debt, the possibility of the Spanish government following suit, and renewed concerns over Dubai World once again asking to delay its debt repayments, are moving into long Dollar positions.
As the deadline fast approaches for Prime Minister Gordon Brown to call a general Election in the UK, opinion polls have taken center stage in setting traders’ sentiment about the Pound. Brown’s labor party closed the gap on the conservatives to just six points, suggesting the possibility of a hung parliament. With neither party having a clear majority, this would render the Prime Minster unable to effectively tackle Britain’s very serious deficits. The time between now and the election will be dangerous for the Pound, with only more downward pressure expected.
The political finger has again been pointed in the direction of hedge funds, which are now being blamed for aggressively short selling the Euro and effectively betting on the currency going even lower. Both Greek and Spanish governments have raised concerns over what they believe are attempts to destabilize the Euro. A weaker Euro may improve the region’s outlook in the next quarter, as exporters’ bottom line figures are sure to benefit. Expect further pressure on this ailing currency over the next few weeks.
The commodity currencies, most notable are the Canadian and Aussie Dollar, have continued to perform well. The reserve bank of Australia raised its interest rates to 4%, inflicting a 25-year high against the Pound. The Canadian Dollar, supported by strong Canadian fundamentals and higher oil prices, has enjoyed particularly strong levels against the Greenback, trading at the top of its current range.
The Canadian unemployment rate dropped to 8.3% as 43,000 new jobs were created in the month of January – further evidence of a continuing stabilization of the Canadian economy. Parity anyone?