Pound news:
The Pound is very much on the back foot after RICS House Price data came in much weaker than forecast. Expectations of 5% growth were met by a -8% figure which put a serious dent in any upbeat sentiment surrounding the Pound. This data was released at one minute past midnight today so the markets have had to time to adjust to this and as a result Sterling has dropped back below €1.20 to trade at €1.1995 however this was much the same yesterday and by afternoon trading Sterling was back above €1.20. Hopefully we will see the same today.
The poor House data also pushed Sterling lower against the dollar, so far we are seeing a drop of -0.54% in GBP/USD which takes the Pound down to $1.5801. This is a fairly heavy fall from yesterday’s price of $1.5945 and the low of the day of $1.5776 suggests that we may fall further if traders favour the U.S dollar over the Pound. The U.K trade balance is due at 09:30 London time with the markets looking for a contraction to -7.7B from -8.1B. Recent public sector net borrowing figures showed an increase in borrowing so this forecast could be slightly optimistic. Nevertheless it is one to watch out for as anything either side of market forecast will cause market volatility. So far things are not looking good as the screens show the Pound down against all its traded pairs except New Zealand Dollar.
US Dollar news:
We are off to quiet a volatile start this morning as the markets focus upon the U.S in order to gauge just how serious this economic dip is. All eyes are on the Federal Reserve and how they deal with the possibility of more quantitative easing. For the time being no one is quite sure but as Mike Moran, senior foreign exchange strategist at Standard Chartered Bank in New York puts it “I think the focus really is on any indication about return to (quantitative easing) if there is any indication that they have their finger on the trigger, that could weigh on the dollar.” For the time being the dollar has moved higher against the majority of its traded pairs. Sterling has dropped to $1.5801 from $1.5945 last night and the euro is well of its highs to currently trade at $1.3178. Despite the downbeat outlook for the U.S the dollar strength has come about from traders viewing the increase of QE as a ‘pro-growth’ move by the Fed. Either way the outcome of the FOMC meeting is likely to move the markets but this is not due until 19:15 London time.
Trading is likely to be heavy as traders place their positions ahead of the meeting. So far the commodity currencies are on the back foot as AUD, NZD and CAD all find themselves lower by half a percent, the
Canadian dollar slipping back into the $0.96 level having reached $0.98 in the previous week.
Euro news:
After a push to $1.33 the euro has retreated as the markets take the view that the euro rally has been slightly over done of late. The current market price of $1.3175 is not a huge move lower but the outcome of the Federal Reserve meeting later today could see further downward pressure if the markets look favorably on the dollar. For the time being “The market was moving into a wait-and-see mode ahead of the FOMC statement, unwilling at this point to take a strong view of the U.S. dollar,” said Matthew Strauss, currency strategist at RBC Capital Markets in Toronto. The turn to risk off in the markets has seen the dollar strengthen even though it is the currency that is under scrutiny. One would expect the euro to fall as despite the U.S economy coming under fire the euro zone is still considered a high risk asset to hold. The main issue being that a wobble in the U.S recovery is likely to have a ripple effect around the world, possibly re-igniting the contagion fears in club med. For those based in London we will see the results tomorrow as U.K and European markets will have shut before the U.S meeting.
Quote of the Day
With luck on your side, you can do without brains – Giordano Bruno
