Daily Forex Brief London: Wednesday 21st March 2012

The UK balancing act

Even for those beyond UK shores, today's budget should be of interest because austerity is the only game in town for many European countries and the UK is further down that path than most, at least in terms of implementation. There used to be a time when UK budgets were a closely guarded secret, but that's long gone. As such, even though the chancellor cannot afford any net fiscal give-aways, we know that some subtle shifts in the tax burden will be made. The Chancellor will be able to announce that borrowing for the current fiscal year, which ends this month, will be broadly in line with the forecast made a year ago, which contrasts with the fiscal slippage being seen in several other European countries. But the UK remains on a fiscal knife-edge, with the economy expected to grow by less than 1% this year. Sterling has been performing relatively well of late, in part helped by the UK's relatively comfortable fiscal performance but also helped by the changing dynamics of FX markets, which are shifting the focus away from carry and risk. From the sovereign risk, growth and policy viewpoint, sterling is perceived to be the better of the bunch, at least within Europe.

Also in today's Daily Forex Brief:

• The Saudis step up
• More Chinese growth concerns
• Return to UK inflation disappointment

Daily Forex Brief London: Tuesday 20th March 2012

Aussie wobbles

The recovery in the Aussie seen over the past few sessions was brought to a halt overnight, AUD/USD stalling above the 1.06 level. The minutes of the latest RBA meeting were one factor in eliciting a more cautious approach - the door was left open to further easing should the global environment deteriorate. Also in the background is the slower pace of growth expected in China, which is expected to impact the domestic economy, but the Aussie has remained surprisingly resilient to such fears. There can be no doubt however that the dynamics of FX markets have changed over the past few weeks and this has broken some of the established dynamics (such as between the Aussie and global stocks), so it's more the change in global risk dynamics (and appetite for higher yielders) that has softened the Aussie, rather than domestic factors exclusively.

Also in today's Daily Forex Brief:

• FX and bonds
• Sterling's big week
• Booming German house price

Daily Forex Brief London: Monday 19th March 2012

Friday a dim day for the dollar

Friday was a remarkably dim day for the dollar, and yet apart from 'flows' it was no easy task to pinpoint an exact trigger for it. During the early afternoon there were some large sell orders for the greenback, especially against the euro – the single currency almost touched 1.32 at one point, after declining to 1.3050 earlier. Sterling did even better, with cable climbing from under 1.57 to above 1.5850. The dollar index, which had seemed rather comfortable above 80 over recent days, suddenly and rather inexplicably found itself below that level. Interestingly, bond yields were under continued assault, with 10yr bund yields up above 2.0% for the first time in a few weeks and the 10yr gilt yield climbing to 2.43% - just two weeks ago, it was trading below 2.0%. US treasury yields also rose, not helped by news that one-year inflation expectations in the latest University of Michigan survey had jumped to 4% from 3.3% in the latest month. Stocks remained well-bid while Brent crude rose above USD 124.

Also in today's Daily Forex Brief:

• Keep a close eye on Spain
• Fiscal compact resistance
• Brazilian fragility

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Daily Forex Brief London: Friday 16th March 2012

No hurry to worry

For once, markets are approaching the end of the week in a relative state of calm. Oil prices have eased around 4% from the highs seen earlier in the month, global equities have more than recovered from the modest correction and the sell-off in higher yielding currencies (Brazil and Australia, among others) has stabilised, at least for the time being. The other notable event was the further fall in the VIX index to levels not seen since mid-2007. In other words, investors are putting a much lower premium on uncertainty. Now, this can be seen as both a good thing and a bad thing, given that it was the under and mis-pricing of risk that was partly a factor in the financial crisis in the first place. But for now, investors appear content to at least breathe a sigh of relief and not to worry about the latest twist and turn in Greece. Enjoy it, as it won't last forever.

Also in today's Daily Forex Brief:

• China's growing pains
• Rate race
• Another bubble bursting – this time down under