Currency Market Updates | RBS announce record corporate loss…

RBS announce record corporate loss…

RBS announce record corporate loss…

Following yesterdays UK GDP data the pound looked resolute and stable, trading towards the top of the range against the dollar and the euro.  This illusion was shattered by dovish comments from MPC member Blanchflower and the news that RBS announced the biggest loss in corporate history at £24.1 bn; this was attributed by Chairman Philip Hampton to “unprecedented turbulence” in the finance markets. The pound shed 4 cents against the dollar and 2 cents against the euro; the situation was not helped with continued weakness in the equity markets which encouraged the safe haven dollar to be bought.  The scale of the loss for RBS was expected by the markets and the fall in sterling was mainly attributed to comments by MPC member Blanchflower, who stated that unemployment is in line to rise by 60,000 every month.

Bank of England governor Mervyn King is due to discuss the banking crisis before the select committee on Thursday; this could increase calls for quantitative easing to commence in order to increase money supply.  This strategy will be a gamble for the economy as it is considered an unconventional measure, therefore it will be interesting to see how this unfolds and whether this will increase money supply or simply cause the banks to hoard more funds.  If introduced there will pressure on the banks to increase lending- this time more conservatively!

In terms of economic data, today we have seen Nationwide UK house prices slump 1.8% in February- a record drop.  This equates to a year on year fall of 17.6% and raises the probability that house prices could face further declines throughout 2009.  The continuing fall in house prices obviously has a direct link to mortgage lending, although lending increased in December it was still £5.8bn below the previous year with mortgage approvals in December less than half of the previous year. The ideal goal for the government will be to increase lending and liquidity with the relevant controls in place so we do not see a repeat of this downturn; a long term goal in all probability.

From the euro zone we have already seen this morning consumer confidence fall to a record low of -33 in Feb; however German unemployment came in better than expected with a loss of 40,000 jobs in the months against a consensus of 60,000.   Still the figures are weak and businesses have tended to cut hours and salaries rather than make redundancies. Later today we have a flurry of economic news from the US in the form of jobless claims, new home sales and durable goods (cost of orders received by manufacturers for long term goods).
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Edward Kirwan, BSc Hons, is an independent professional Investment Portfolio Consultant working with Currencies Direct and is based in Spain. Working with overseas property investments, currency trade, corporate foreign exchange, international payments and transfer payments overseas are all an important elements of this business.

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