Pound news:
The upward climb continues as Sterling hits new high after new high against the euro. The current price of €1.2307 and a high of €1.2326 would suggest that there is just enough momentum for Sterling to hold the €1.23 levels. This move has been driven by two factors; the first being hawkish comments from a member of the BoE who said that the budget would allow for interest rate rises when necessary. The second factor is the rather dangerous position the euro finds itself in this week as the ECB ends its 12-month loan facility, more of which later. For the moment the Pound is continuing its rally as our deficit concerns are no longer in the spot light.
Between the two the dollar is always the favoured currency and despite the support for Sterling it can do little to pair gains on the Greenback. That said, trading so far has shown that losses have been limited. A look at the high of the day also shows some better news as Sterling broke through $1.51 to hit $1.5117. This level will now be the target for the upside for GBP/USD.
There is nothing scheduled for release that is of high impact but better than expected figures for net lending to individuals and final mortgage approvals may help the Pound reverse losses in afternoon trading, those figures out at 09:30 London time. Trading trends will be interesting to watch today ahead of Q1 GDP figures out tomorrow. GDP is a very substantial marker of economic health and anything either side of expectations is likely to move Sterling.
US Dollar news:
The markets are starting to get slightly nervous ahead of upcoming events in the euro zone. As such this is beginning to pull markets lower as the focus now turns to the global economy heading into a depression. As such the dollar is being bid up on the back of risk aversion for riskier assets.
This morning sees the dollar up against the vast majority of its traded pairs. Sterling is doing its best but finds itself down -0.32% so far although still trading in the $1.5050 region. The euro is also struggling to hold recent gains, having been in the $1.23 area for a couple of weeks it has now slid back to $1.2226 and currently at the lows of the day. A look at the price for EUR/USD at 16:30 yesterday shows that overnight the euro has lost close to a cent on the dollar.
The major currencies to suffer on global slowdown and risk adjustment are the commodity lead currencies. Today is no different as AUD and NZD are heavily down on the dollar by -1.33% and -1.39% respectively. The Canadian dollar is also suffering as it finds itself down by -0.75% and now trading at $0.9581 on the market. There was little news yesterday and today is much the same. One to watch out for perhaps is CB consumer confidence at 15:00 London time.
Euro news:
The euro is likely to come under pressure this week as the 12-month ECB lending facility expires forcing banks to look elsewhere for capital. “How investors cope with the expiry of the ECB’s 12-month long-term refinancing operation on Thursday will provide some indication of the degree of stress that euro-zone banks are under,” said Mike Jones, currency strategist at the Bank of New Zealand. The main issue is that no-one is too sure how much the banks can roll over their debt to other lending facilities. If they are unable to find capital reserves from the ECB then their balance sheets will be hugely undercapitalized putting a huge strain on the euro zone banking structure.
Another factor to consider that will also weigh heavily on the euro is the larger than usual bond auctions from the euro zone. If demand remains weak then we could see a slight panic sell-off of the euro. The market is understandably becoming slightly nervous as the current plan of refinancing and refinancing debt will have to end sometime.
Quote of the Day
“Some people dream of success… while others wake up and work hard at it.” – Anon.
