Morning Musings
11/04/11 -- The overnights are firmer, although well off earlier highs. May corn set a new record for a front month in overnight trade, hitting 7.83 3/4c, up 15 3/4c, at one stage before slipping back to currently trade at 7.74 1/2, up 6/12c. Other grains have also lost early gains. May beans are currently down 1 1/4c at 13.91, having traded as much as 14 1/4c higher at one stage. May CBOT wheat is 1 1/2c firmer at 7.99, having reached 8.09 1/4, up 11 3/4c.
The dollar is weak, with the US having only just averted a federal shutdown on Friday night. The US have been slower to react to cutting their burgeoning budget deficit than the UK and Europe. Obama has the added difficulty of trying to push his cuts through against fierce Republican opposition.
Friday night's "deal" still has to be passed by the Republican controlled House this week, setting up a nervous and potentially choppy week for the US dollar.
Whether the proposals got through or not, it looks like a lose-lose situation for the dollar to me.
Not so for the euro, basking in the glory of a 25 point interest rate increase last week. The single currency is at it's highest against the pound since October this morning, and very close to it's best levels in more than a year. Against the dollar it's at it's highest since January 2010.
The market still seems to be pricing in a UK interest rate rise around May/June as inflation here continues to rise. The problem for the BoE is stagnant growth and low consumer spending as our own austerity measures bite into disposable income.
They might not admit to it, but it may just be that the Government don't mind the idea of a weak pound (especially against the euro) to boost our exports (especially to our near neighbours).
Inflation at well above the target 2% will also reduce the value of the massive public debt.
Maybe the much-anticipated hike in UK interest rates is further away than we might think?
