Three Big Stories In The Currency Market Are Happening Today

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Most markets are fairly quiet today (although downish) but the action is in the currency market.There are three notable stories.

1. The G7 Finance Ministers have issues a lukewarm comment about how countries should not engage in exchange rate manipulation. The big winner is seen as Japan, since it wasn’t called out for currency manipulation.

2. Speaking of currency manipulators, the heat of the Swiss National Bank said that it will keep the Swiss Franc’s ceiling against the Euro, and that he believes the Franc remains overvalued.

3. The Pound is getting hammered today after inflation data from the UK. The pound has been getting pummelled lately, in part due to deteriorating data.

In a recent note, Kit Juckes made a simple argument for long-term pound decline:

Both the US and UK released trade data for December at the end of last week. The US data were encouraging, showing the smallest monthly deficit since January 2010, while the UK data were not far from expected. The data do however show divergent trends in the balance of trade in oil. The individual monthly data are distorted, but the trends are clear – the US energy deficit is shrinking quickly and the UK’s oil deficit is growing steadily. North Sea oil is running out and the US is at the start of an energy boom. The latter has attracted a lot of attention in the press but it is beginning to show up in the data and there are is a lot further to go.           

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