Colonel Gadaffi is clinging on to power in Libya where there is a mass uprising against his regime. Gadaffi’s rhetoric is becoming more aggressive as he describes anti-regime protesters as ‘rats’ and calls on supporters to ‘cleanse Libya house by house’ unless protesters surrender. This has heavily reduced risk appetite in the market place, causing the US Dollar to make large gains against many of the other main traded currencies. In the equity markets the FTSE 100 and the S&P 500 dropped by 1% as investors moved assets to safe havens. The cost of insuring sovereign debt against default has also risen markedly across the Middle East and in North Africa.
This crisis has also caused a marked increase in volatility in the currency markets, with large swings throughout the day yesterday on the Sterling to US Dollar and US Dollar to Euro currency pairs.
Elsewhere a disastrous Earthquake hit Christchurch in New Zealand. The 6.3 magnitude earthquake has hit a major economic area, affecting many businesses and claiming many lives. This has caused the New Zealand Dollar to drop heavily. Yesterday the Kiwi lost over 1.5% against the Pound and 1.8% against the US Dollar. Sterling is now trading at its highest point against the New Zealand Dollar since September 2010.
There was more positive news in the UK, as Britain’s fiscal position got an unexpected boost. The Office of National Statistics reported a surplus in the UK public sector finances for January. Tax revenues exceed government spending by £3.75bn, which is the largest surplus since July 2008 and compares favourably with a £1.8bn deficit in January 2010. The improvement comes as a result of increased tax receipts, helped by the bankers tax and the VAT increase. Government spending is continuing to increase however, up by 6% which is slightly above expectations.
