British Pound Sterling / US Dollar
The USD made small gains against most of its major counterparts (aside from GBP and CHF) yesterday as risk appetite softened and safe haven demand picked up on the back of renewed concerns surrounding Europe, poor U.S. housing data and worries surrounding slower growth in China.
Financial markets continued to focus on news from the U.K. yesterday, with the trifecta of the Bank of England MPC minutes, Public Sector Net Borrowing figures, and the budget speech from Chancellor George Osborne all on tap.
The MPC minutes revealed that the committee voted 7-2 to leave monetary policy on hold in March, with members Posen and Miles voting for a further injection of Q.E. to the tune of £25 billion. This outcome was more dovish than the 9-0 vote that the market was expecting, although the fact that Messrs Posen and Miles weren’t on board with the decision to leave the Asset Purchase Program unchanged at £325 billion was hardly surprising given their respective votes in February for an increase of £75 billion versus the £50 billion that was delivered.
If the minutes made sterling bulls nervy, the Public Sector Net Borrowing figures had them clambering for the exits as the figure came in at £15.2 billion, way above market expectations of £8.0 billion. It’s unlikely that this number would have been missed by the ratings agencies who have very recently called into question the sustainability of current U.K. debt levels.
The dovish minutes and terrible borrowing figures hit cable hard with the pair shedding a quick 70 points, down to 1.5843 and below the key 200 day moving average. Losses in the pair continued going into the Chancellor’s budget speech, the key points of which included a cut to the top 50% income-tax rate, Corporation Tax cut to 24%, and a new stamp duty level of 7% for homes worth more than £2 million, all of which are aimed at making a large dent in the U.K. deficit by 2017.
We have U.K. February retail sales numbers out this morning which are expected to show a decline of 0.5% against the surprise 0.9% growth that we saw last month and on that basis we are expecting to see GBP come under some pressure against the greenback today. GBP/USD opens this morning at 1.5815.
We expect a range today in the GBP/USD rate of 1.5750 to 1.5920
The single currency continued to range trade against most of its major counterparts on Wednesday, although there were some sharp intraday sell offs as concerns surrounding European sovereign debt woes retook the stage as Spanish and Italian bond yields broke higher. Spain was a particular focus on the day with one well known analyst stating that the nation is at more risk than ever before of having to restructure its debt. It wasn’t all bad news from Europe however, with Portugal seeing a solid take up and improved yields at their most recent T-Bill auction. In early London trading EUR/GBP rallied to its daily high of 0.8371 (1.1946) on the back of the weaker than expected U.K. government borrowing numbers and more dovish than expected Bank of England minutes, but from then on the pair was sold off heavily in tandem with EUR/USD, trading to a low of 0.8322 (1.2016). This morning we have already seen the release French and German PMI numbers and both have come in below market estimates, compounding investor concerns that economic activity within the Eurozone is suffering. Subsequently the 17-nation currency has started this morning on a very soft footing and with little else on the European data docket today, aside from some consumer confidence figures, we expect that the euro could continue to nurse losses against both the USD and GBP. That being said if U.K. retail sales figures surprise to the downside we should see EUR/GBP recoup some of its early losses. GBP/EUR opens this morning at 1.2025.
We expect a range today in the GBP/EUR rate of 1.1950 to 1.2080
Australian Dollar and New Zealand Dollar
Since the BHP Billiton comments on Chinese iron ore demand hit the wires a couple of days ago the commodity dollar bloc has come under sustained selling pressure and this trend was unbroken on Wednesday as AUD/USD and NZD/USD fell to intraday lows of 1.0424 and 0.8120 respectively.
The plight of the AUD and NZD was certainly not helped by the renewed demand for the greenback as a safe haven on the back of global growth concerns and the renewed worries about Europe. The prevailing AUD and NZD weakness meant that GBP/AUD and GBP/NZD were able to continue their moves higher yesterday, touching 1.5185 and 1.9493 respectively, although the weaker than expected Public Sector Net Borrowing figures and Bank of England minutes meant that any further gains for the pound were limited.
Overnight the sensitivity of the AUD to Chinese data and news flows has been highlighted once more with AUD/USD tumbling to 1.0376 as Chinese PMI data came in at 48.1 versus market expectations of 49.6 and subsequently GBP/AUD spiked to 1.5286 as AUD selling swamped the market.
The NZD has also come under heavy selling pressure as the economic growth of New Zealand in Q4 2011 was shown to have slowed to half the pace that analysts had predicted, leading investors to pare back bets that the Reserve Bank of New Zealand will look to raise rates over the coming months. NZD/USD gave up half a cent on the GDP release and was then hit again with the worse than expected Chinese PMI data, which sent GBP/NZD soaring to 1.9668, its highest level since the start of January.
We expect the gains in GBP/AUD and GBP/NZD to slow should we see a weaker than expected U.K. retail sales print this morning. GBP/AUD and GBP/NZD open this morning at 1.5255 and 1.9602 respectively.
We expect a range today in the GBP/AUD rate of 1.5120 to 1.5350
We expect a range today in the GBP/NZD rate of 1.9480 to 1.9710
AUD: No data due
EUR: Eurozone Flash Composite PMI, Eurozone Consumer Confidence, Eurozone Industrial New Orders
GBP: Retail Sales
NZD: No data due
USD: Initial Jobless Claims, House Price Index, Leading Indicator
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