Brave New World

FX Review of the Day 18/05/2009

JPY: Vice Finance Minister Sugimato warns against excessive moves in currency markets. JPY negative

GBP: Rightmove house price survey says house prices increased 2.4% in May. GBP positive

INR: Conclusive victory by Congress party in Indian general election. Stock market rallies 18% on news

The Indian general election was the unlikely trigger for a return to risk appetite this week, with the Congress party scoring a decisive win, ensuring the continuation of a program of pro-market reforms. Global commodity markets rallied on the back on the news, as did the Indian stock market, by 18%. Sentiment was given a further boost in the UK with a surprisingly positive report on the housing market. The Rightmove house price survey showed a rise in May of 2.4%. Sterling made significant gains against the USD, with Cable rising from 1.5117 to a end at the 1.5350 level. Sterling also gained against the Euro, with EURGBP falling below the technically significant 0.886 level. The EUR did gain about 100pips against the USD with EURUSD trading at the 1.3560 level. This was mainly as a result of USD weakness, rather than EUR strength; the Eurozone is still reeling from Friday’s shocking GDP figures. Investors moved strongly out of US Treasuries; the yield on the 10 year note rocketed 9 bps to 3.22%. At the same time credit spreads are returning to pre-August 2007 levels. As a further boost to the notion that conditions are returning to normal, Treasury Secretary Tim Geithner said that the government would not seek to impose a cap on executive compensation.