British Pound Sterling / US Dollar
The European session was a very subdued affair on Friday with the FX market having little news to focus its attention on.
Because of that, the price action of the USD continued to takes its cue from US Treasury yields, with the latter’s recent outperformance helping the USD to gain across the board over the past week. However, the New York open brought some much needed economic data in the form of US core inflation figures which failed to rise for the first time in 16 months, and despite the significant shift in US rate expectations that we have witnessed since March 13, the lower than expected figure failed to support the notion of a more hawkish Fed.
As well as the inflation data we saw a sluggish US Industrial Production number and a weaker than expected consumer confidence figure and as a result, greenback selling prevailed, with the move in GBP/USD most pronounced as it spiked from 1.5740 to 1.5861, before the rally lost momentum close to the key 200-day moving average.
Sterling was also well supported by this weeks strong move in 10-year Gilt yields. The week ahead is likely to be a choppy one for the pound, with traders eagerly anticipating the release of UK inflation and retail sales numbers along with the minutes from the most recent Bank of England MPC meeting. We will also see Chancellor Osborne deliver his budget announcement which should draw some focus in light of last weeks move by Fitch to downgrade the U.K.’s credit rating from stable to negative.
We have no market moving data due from either side of the pond today and GBP/USD has started this week well supported above 1.5825 in a quiet Asian trading session. GBP/USD opens this morning 1.5838.
We expect a range today in the GBP/USD rate of 1.5720 to 1.5930
Like the pound, the single currency traded higher against the USD on Friday.
USD weakness on the back of the softer than expected US data releases was certainly one reasons for the move higher in EUR/USD, but support was also lent to the 17-nation currency on chatter that Euro zone leaders are looking to inject another EUR 250 bln into the EFSF (European Financial Stability Facility) by summer in a bid to stave off contagion to other members of the currency union, in particular Spain and Italy.
EUR/GBP looked heavy during the European session on Friday on the back of some large scale interbank selling but bounced off some bids in the 0.8295 (1.2055) area before breaking higher alongside the EUR/USD pair as the weaker inflation numbers weighed on the greenback.
European woes, for so long the number one focus for markets, took a back seat last week and we expect this theme to continue this week. That being said, we do have some important numbers due for release from Europe over the next couple of days, in particular Thursday will bring Euro Zone manufacturing and services PMIs. These numbers will need to come in firm to avoid market concerns surrounding growth in the 17-nation union in the wake of the sovereign debt crisis. Euro zone current account data will be the main focus for investors today on an otherwise very light data day for economic releases and GBP/EUR opens at 1.2035 this morning.
We expect a range today in the GBP/EUR rate of 1.1940 to 1.2080
Australian Dollar and New Zealand Dollar
Both the AUD and NZD performed well against the USD on Friday, as weaker than expected economic releases from the United States lead investors to sell the greenback on worries that the Federal Reserve will need to maintain monetary stimulus.
AUD/USD rallied to a high of 1.0597 from its opening level close to 1.0520 and the NZD/USD pair touched a high of 0.8258 from a starting level close to 0.8200. The commodity currency bloc was also better supported as U.S. equity outperformance continued on Friday as the S&P 500 rallied to its highest level since May 2008 and the Dow Jones Industrial Average finished the week up 2.4%. On the crosses price action was pretty flat with GBP/AUD ending the day at 1.4960, about 20 points from its high for the day and GBP/NZD ended Friday at 1.9213, about 30 points off its lunchtime highs.
This week we have the release of the RBA minutes from the central banks most recent policy meeting, and we also have the release of New Zealand fourth quarter GDP to look forward to. The AUD has started this week on a firmer footing on the back of overnight comments from RBA Governor Glenn Stevens, expressing firm confidence in Chinese economic growth and rising Asian stocks have been broadly supportive of the higher yielding currencies early this morning. GBP/AUD and GBP/NZD open this morning at 1.4941 and 1.9176 respectively.
We expect a range today in the GBP/AUD rate of 1.4860 to 1.5050
We expect a range today in the GBP/NZD rate of 1.9010 to 1.9280
AUD: RBA MPC Minutes
EUR: Eurozone Current Account, Italian Industrial Orders, Italian Industrial Sales, Eurozone Construction Output
GBP: No data today
NZD: No data today
USD: NAHB Housing Market Index
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