Tag Archives: sterling

Currency Matters

Political agreement would not appear to be any closer in the US following President Obama’s State of the Union address last night. With the postponed fiscal cliff spending cut discussions due to re-emerge in the forthcoming weeks, markets will be hoping bipartisan agreement is easier to come by than it was in the run up to the new year deadline. Last night President Obama offered little in terms of initiatives that are likely to do much to help increase US growth, such as minimum wage increases and climate initiatives. However, when it came to deficit reduction the president was slightly more emphatic, stressing that whilst it is important; “deficit reduction alone is not an economic plan”. It would appear that the theme of political impasse is due to continue as discussions regarding spending cuts and tax hikes loom closer.

Elsewhere yesterday we saw confusion in the markets following contradictory statements released by the G7. Initially indicating that it was unconcerned with recent worries regarding the weakening Japanese Yen, the statement from the G7 seemingly appeared to accept Japans latest fiscal policy manoeuvring as a domestic issue. However this stance was contradicted soon after the initial statement was released, when a G7 official clarified the situation, expressing that the G7 was in fact concerned with Japans monetary policy and the statement had been directed at Tokyo. This led to a wide trading range yesterday for USD/JPY, as the pair bounced between 94.40 – 92.94. We may well see fluctuations in the Yen continue tomorrow as the Bank of Japan is due to release its interest rate decision and monetary policy statement in the morning.

Unsurprisingly Sterling is down against the Euro and the Dollar yet again this morning. After falling over night and during the early hours of this morning, BoE Governor Mervyn King’s speech following the Bank of England’s Quarterly Inflation Report offered no assistance in halting the decline. Despite Governor King insisting the UK economy was set to recover, his comments were shrouded in numerous caveats. Mainly these were that growth is going to take longer and be weaker than had originally hoped, and that inflation is likely to rise. Markets reacted negatively to the Governors speech, in which it was also disclosed that inflation is likely to remain above target as it is becoming increasingly difficult to bring CPI back to the targeted 2%. This lead to immediate downward spikes in both GBP/EUR and GBP/USD, as the pairs dropped as low as 1.1514 and 1.5533 respectively.

With little more economic data due to be released this afternoon, it’s more than likely we will see markets consolidate in preparation for tomorrow. GDP figures are due out across Europe tomorrow morning, with the majority of market focus being heavily placed on German and EU figures. Should these figures fall short of market expectations, this could well be a catalyst for Sterling to begin recovering some of its recent losses.

Mark Webster

Sterling update

Sterling has had a pretty dismal start to the day this morning having had a simultaneous drop off against the Euro and the Greenback at 8:30am, with both pairs losing over half a cent in little over half an hour. Sterling has since levelled off and is currently holding against the Euro at 1.1637 and 1.5585 against the Dollar.

Earlier this morning we had UK housing data released by RICS which showed the Housing Price Balance dropped to -4% in January. Further UK data has just been released and isn’t too favourable either, with the UK Consumer Price Index remaining stagnant at 2.7%, and the Core Consumer Price Index falling marginally to 2.3% last month, down from 2.4%. The UK Producer Price Index met market consensus at 2.0% whilst UK PPI Core Output fell to 1.4% in January, capping off yet more negative data for the UK, something which seems to have become the norm since the turn of the year.
Sterling has continued to suffer on the back of consistently weak UK data and improved sentiment within the Euro Zone. Going forward the outlook doesn’t look any more promising for Sterling either. Long term charts for both GBP/USD and GBP/EUR indicate that risk is still to the downside with key resistance levels being potentially targeted at 1.5278 and 1.1223 respectively.

However, Sterling could well rebound should sentiment towards the Euro Zone begin to change, especially following the Pounds such severe and rapid losses over the last few weeks. With GDP figures due out across Europe on Thursday and Italian Prime Minister Elections drawing ever closer, potential for a decrease in the Euro remains significant. Furthermore, after the recent 18 month highs for the Euro against the Pound and the Dollar, the grumbles of European leaders with regards to the common currency’s current strength are becoming louder. This issue is also likely to be mentioned by ECB President Mario Draghi in his Speech today, which could well have an impact on GBP/EUR trading this afternoon.

Mark Webster

Currency Update

Positive UK data released this morning fuelled a moderate rally in the Pound, albeit a very short lived one. UK Markit Services PMI showed a substantial rise to 51.5 in January and caused Cable to spike upwards immediately following the release before dropping back off to where it is now, trading flat for the day at 1.5750. Similarly GBP/EUR rose slightly following the UK PMI figures, however the pair has now weakened and Sterling’s decline has seemingly resumed, with the pair now trading at 1.1630.

The Euro has strengthened against both the Pound and the Dollar this morning following the release of PMI figures. Whilst UK PMI data showed a positive increase, Markit Services PMI results for Spain, Germany and the Euro Zone were also positive. However, this data was soon contradicted by EU Retail Sales figures which showed sales were down -3.4% in December. As market participants digest the figures, it would appear that they have not yet decided that Sterling is oversold or the Euro has appreciated too far. However, one must recall the comments made several weeks ago by Luxembourg Prime Minister Jean-Claude Juncker, who stated that the Euro is ‘dangerously high’ – if that observation was correct then, the Euro must now be in an extremely precarious situation.

Elsewhere this morning we saw the Reserve Bank of Australia commit to keeping interest rates at 3.0%. The Aussie Dollar dropped off against Sterling and the Greenback following the data release as RBA Governor Glenn Stevens gave an explicit indication that rates could well go lower in the future. Despite these comments, the outlook for the Australian economy would appear to be consistently improving as China’s rebounding growth continues to be confirmed. This morning the HSBC China Services PMI hit 54.0, up from 51.7 the previous month. GBPAUD currently trades at 1.5140.

How Low Can You Go

Sterling hasn’t seen a week as bad as last week for a long, long time and the outlook doesn’t look any rosier either. Cable (GBP/USD) recorded a new six month low on Monday after dropping to 1.5674, and GBP/EUR has continued to fall, hitting a new twelve month low yesterday at 1.1618. Sterling is continuing to suffer following a number of negative data releases last week. All in the same week we saw substantially weaker than expected UK GDP figures of -0.3%, fears of a triple dip recession, and David Cameron confirming his commitment to a referendum on Britain’s membership within the EU, all of which contributed to increasing uncertainty surrounding the UK economy and therefore a weaker pound.

Sterling has suffered right across the board recently, weakening against all major currencies last week. However, the pound has suffered the most against the Euro as weak UK data combined with the ever improving sentiment regarding the condition of the Eurozone and Europe as a whole (mainly because of data confirming that Germany is still an economic powerhouse) has sent GBP/EUR into free-fall. The pair fell to, and held at, a key level of support of 1.1722 on Friday before breaking this level on Monday. The pairs decline has continued throughout this week and a new twelve month low was reached on Thursday, before the pair recovered slightly to its current level of 1.1650.

Cable has fared slightly better in the past few days after a similarly horrific drop last week and early this week. The pair is currently trading at 1.5790 after hitting a key level of support, and a six month low, of 1.5674 on Monday before bouncing back up. GBP/USD is likely to target the next key level of resistance at 1.5911, however should momentum turn back to the downside, we could well see the pair drop back off to below 1.5675.

We could see significant movement in the markets tomorrow as economic data will be released in China in the early hours of tomorrow morning. Chinese Manufacturing PMI figures could increase volatility due to the emphasis that is placed on the Chinese economy’s role in the global recovery. Tomorrow is also everybody’s favourite Friday of the month – Nonfarm Friday. US Nonfarm Payrolls will take on greater importance tomorrow after US GDP figures released yesterday surprised markets by showing that the world’s largest economy had contracted 0.1% in the final quarter of 2012.

Currency War

It would appear that the world is on the brink of war. Currency war that is. According to the Russian central bank we are anyway. The comments come following Japans recent commitment to devalue its currency by increasing monetary easing within the country, in an effort to increase the country’s global competitiveness. Whilst at first sight the comments from Russia may seem alarmist, they raise a good point. If Japan is going to commit themselves to a policy of currency devaluation, it would appear inevitable that other countries will follow suit.

This follows comments made yesterday by Luxembourg Prime Minister Jean-Claude Juncker, who described the Euro as “Dangerously High”. This sparked a Euro sell off which led to EUR/USD dropping off to 1.3261 this morning after reaching a high of 1.3403 on Monday, its highest point since February 2012. Similarly the Euro weakened against Sterling as GBP/EUR reached 1.2097 this morning. This followed the pairs fall to 1.2011 yesterday, which was its lowest point in nine months, as the Euro had continued to strengthen on the back of ECB President Mario Draghi’s press conference last Thursday.

Cable finally broke below 1.6030 this morning after having been held at that level for the previous two days. The pair went on to hit 1.6003, testing a key Fibonacci level at 1.6010, before rebounding back to 1.6030+. The pair is again currently trading on the six month upward trend line after having briefly broken through this late last week. Continued downward pressure on Sterling following the World Bank growth rate downgrade and David Cameron’s persistent attempt to renegotiate Britain’s EU membership could see Cable fall back to 1.5911.

EU economic data released this morning showed Consumer Price Index figures for the region remained constant at 2.2% for December, as had been expected. We may well see further movement in the Dollar this afternoon as CPI figures are released at 13:30 in the US, along with US Industrial Production at 14:15 and the Fed’s Beige book at 14:15.

Mark Webster

Watch and Wait

Markets are relatively flat this morning as economic data coming out of Europe has thrown up no real surprises. The German Consumer Price Index for December was bang on expectations at 2.1%, as was the UK CPI at 2.7%. There were only a few marginal variations today as the UK Producer Price Index – Output fell short of market expectations recording a figure of 2.2%, whilst UK Retail Sales improved by 0.1% to 3.1% in December.

The data released so far today has caused very little movement in Sterling or the Euro. The pair is currently trading at 1.2030, having found support at 1.2010 late last night following a dismal day for the Pound. GBP/EUR broke below a key level of support at 1.2170 on Friday and continued its slide yesterday. Should the psychological level of 1.20 break, the next area of support for the pair is 1.1946. A break below this would be a strong indication that we could return to sub 1.17 levels, a level not seen since December 2011.

Cable is currently trading at 1.6067. This price level is a key trading area and is currently sitting on a six month upward trend line. The pair has been oscillating between Fibonacci levels at 1.6120 and 1.6003 for the past ten days with only minor breaks either side. A break below 1.6010 would have to break the six the month upward trend line and would indicate a potentially significant drop off and it is likely the four month low of 1.5825 would be tested once again.

Mark Webster

Euro Appreciates

The Euro has continued to appreciate following Thursday’s European Central Bank press conference where ECB President Mario Draghi failed to meet market expectations by not hinting at a rate cut in the coming months.

GBP/EUR is currently trading at 1.2070, a key level of support, after having broken through 1.2168 on Friday, a level which had held for the previous nine months. Todays’ weakening continues a seven day trend for Sterling, as Britain’s position within Europe becomes more and more ambiguous. David Cameron’s attempt to tread a fine line between Conservative Eurosceptic’s and pro-European business leaders is proving difficult and his bid to negotiate a reduction in powers held by Brussels over Britain, whilst maintaining the UKs membership, would appear impossible. Any concrete signs of a full withdrawal of the UK from the EU could prove very negative for Britain and would likely stifle economic growth for the country. Leaders from across Europe and even the US have warned Britain of the damaging effects such a move could have, and the markets would appear to be making their feelings clear too as the Pound continues to weaken.

Elsewhere in the world today, the Yen has continued to weaken as newly elected Japanese Prime Minister Shinzo Abe, looks set to elect a central bank chief who will continue to expand monetary easing in the country. In a further attempt to increase the countries competitiveness internationally, it is hoped that weakening the country’s currency will help drag Japan out of decades of economic stagnation.

EUR/USD broke above a key Fibonacci level of on Thursday and has continued its appreciation since. The pair is currently trading at 1.3368 and should the Euro continue to strengthen the next price level we are likely to see will be at 1.3487, however should momentum dissipate the pair may well fall back to 1.3143.

Cable is currently trading at 1.6124, a significant price level that has been mentioned in previous blogs. We are likely to see the pair trade between 1.6010 and 1.6309 until a consistent break is made either side of this channel. We may have to wait until next month until we actually see this though, when the effects of the delayed fiscal cliff remerge in Washington and US politicians once again commence battle, this time over government spending.

Please find a summary of this week’s economic calendar below:

14.01.13
10:00 EU Industrial Production
15:30 Bank of Canada Business Outlook Survey
21:00 US Fed’s Bernanke Speech

15.01.13
01:00 UK RICS Housing Price Balance
07:00 German Consumer Price Index
08:00 German Gross Domestic Product
09:30 UK Consumer Price Index
09:30 UK Producer Price Index
09:30 UK Retail Price Index
13:30 US Producer Price Index
13:30 US Retail Sales

16.01.13
10:00 EU Consumer Price Index
13:30 US Producer Price Index
14:15 US Industrial Production
19:00 US Fed’s Beige Book

17.01.13
00:30 Australian Unemployment Rate
09:00 ECB Monthly Report
13:30 US Housing Starts
13:30 Building Permits
13:30 US Initial Jobless Claims

18.01.13
02:00 Chinese GDP
02:00 Chinese Industrial Production
02:00 Chinese Retail Sales
09:30 UK Retail Sales
14:55 Reuters/Michigan Consumer Sentiment

Decisions, Decisions, Decisions

Markets are relatively flat this morning as participants wait and see what will be the outcome of two major pieces of economic data due out this afternoon. First we will see the Bank of England release its decision at 12:00 GMT on whether or not to alter interest rates or their asset purchase program. Whilst both of these are expected to remain as they are, market participants look keen to wait until these decisions are confirmed before taking a position within the markets.

A little later this afternoon we will see an ECB Monetary Policy Statement and press conference at 13:30 GMT. As in the UK, the ECB are expected to keep interest rates on hold at their record low of 0.75%. Whilst the Eurozone appears to have been stabilizing recently, there has however been no spectacular data release to suggest that a rate change at present would be warranted.

Elsewhere today we have seen commodity currencies react favourably to the positive data released in China this morning. Figures show that the Chinese Trade Balance rose substantially in December, reaching 31.6B for the month, well above market expectations of 19.7B. The Australian Dollar rose to its highest point against the Japanese Yen in four years following the data release, and is currently trading at AUD/JPY 93.23. The Aussie Dollar was also aided by Japanese Prime Minister Shinzo Abe, who has called for the Bank of Japan to raise inflation targets to 2%, weakening the Yen right across the board.

Mark Webster

Dip, Dip, Recession…

The BRC (British Retail Consortium) released data early this morning that showed British retail sales suffered a lacklustre performance last month as sales rose by only 0.3%. The total value of goods sold was up 1.5% from December 2011 but given that inflation is currently 2.7%, this suggests that UK stores actually sold less in real terms.

These figures will have done nothing to allay fears that Britain could well be sliding into a dreaded triple dip recession. However, the British Chamber of Commerce rejected such inferences this morning, stating that economic conditions were becoming more favourable within the UK and the economy would grow steadily over the next few years. Such judgments are based on the back of marked improvements that have been seen in business confidence figures towards the tail end of 2012.

In Europe this morning, data coming out of Germany showed that the German Trade Balance worsened in November. Figures showed a drop in exports from the European powerhouse to €14.6B, down from €14.9B for the month before. This has been followed by mixed EU data that showed whilst EU retail Sales for the end of 2012 fell short of market expectations, EU Retail Sales (YoY) figures improved marginally to -2.6% and EU Consumer Confidence rose to -26.5.

Immediately following the data releases earlier this morning, the Euro dropped off slightly against Sterling and the Dollar. However the currency pairs are now trading relatively flat at GBP/EUR 1.2265 and EUR/USD 1.3115. Cable is also trading flat at present at 1.6084, after hitting a key level of resistance at 1.6124 earlier this morning the pair dropped back down to its current level and looks to be heading for the next level of substantial support at 1.6067.

Mark Webster

Agree to Disagree

Offers and counter offers were exchanged yesterday as President Barack Obama and House Speaker John Boehner spoke at length regarding how to deal with the fiscal cliff. Accounts differ on exactly what was achieved/agreed during this discussion, but it would appear that markets are optimistic that a deal on the fiscal cliff will be reached on time, before the January 1st deadline.

The Dollar has weakened this morning against Sterling and the Euro, suggesting the talks regarding the fiscal cliff are progressing well, or at the very least they are being perceived to do so. GBP/USD has breached a key level of resistance this morning, breaking through 1.6124, and the next key area to be tested is likely to be 1.6182. A break above this level could see a rise back to the twelve month high of 1.63+ and given the fact the pair are currently trading in an upward trend, this is a distinct possibility. However, failure to continue this advance could see a reversal back to 1.60.

Similarly the Euro has broken out of a key downward trend this week, for the second time in a month, and this is a clear indication that the Euro could strengthen further. However, any movement in the Euro is heavily dependent on how the Eurozone situation progresses and how well European finance leaders are able to deal with the ever continuing debt problems facing Greece.

Attention this afternoon will turn to the US as the Fed is due to make a decision on whether or not to keep interest rates at 0.25%. The Fed is expected to maintain its current rate and any variation would be a major surprise to the markets, which could potentially destabilise the economy and damage the already fragile recovery. However, the main focus will be on the Feds decision regarding its monthly asset purchase program. Operation Twist as it is currently known is due to come to an end this month and markets are waiting to see whether this will be continued through the medium of another QE program.
Please find a summary of key economic events this week:

12.12.12
07:00 German Consumer Price Index
07:00 German Harmonised Index of Consumer Prices
09:30 UK ILO Unemployment Rate
09:30 UK Claimant Count Change
10:00 EU Industrial Production
17:30 US Fed Interest Rate Decision
19:00 US FOMC Economic Projections
19:00 US Monthly Budget Statement
19:15 US Fed’s Monetary Policy Statement

13.12.12
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Producer Price Index
13:30 US Retail Sales
13:30 US Business Inventories

14.12.12
European Council Meeting
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
10:00 EU Consumer Price Index
10:00 EU Employment Change
13:30 US Consumer Price Index
14:00 US Markit Manufacturing PMI
14:15 US Industrial Production