Written by Jon Beddell on February 1st, 2012
Sterling is on the front foot for now, and a close above 1.5700 is a positive signal as the Pound was previously rebuffed from this level 3 times in November.
Foreign Currency Market Update – GBP / USD Update
All eyes were on the eurozone summit yesterday, which resulted in 25 of the 27 EU member states agreeing a new pact focused on tighter fiscal discipline. The idea is that everyone returns to sign the pact at the next summit in March. Both the UK and Czech Republic kept out of the deal, but tacitly endorsed the other members to make a deal outside of the EU to address the euro’s problems. There has been no discernable reaction from the Sterling/Dollar exchange rate that can be directly attributed to the summit. It is worth noting that Italian bond yields are well below 6%, whereas a few weeks ago they were well above 7%. That’s a reliable barometer of investors’ attitudes to the Euro debt crisis. At present the crisis is coming off the boil, which tends to go hand in hand with Dollar weakness as money flows toward higher yielding (riskier) assets.
The UK’s public sector borrowing figures came in better than expected for December (£10.8bn Vs £13.4bn expected). This was overshadowed by the GDP figures for the fourth quarter which showed a 0.2% dip, double the expected contraction. On top of that the minutes of the last Bank of England meeting indicated that some members were actively seeking an extension to the asset purchasing program that we have come to know as ‘QE’. With these two data items Sterling has done well to maintain its composure.
The dollar has been on the back foot as fourth quarter GDP came in at 0.4% or 2.8% (annualised) versus 3.0% expected, still way better than the UK’s. Inflation data has also been softer than expected, with most economists predicting a 1.6% inflation rate in 2012, well below the 4%+ we are seeing in the UK. In the Federal Reserve’s monthly press conference last week chairman Ben Bernanke talked about the possibility of low interest rates for some time to come given the low inflation data and anaemic job creation figures. Again that is negative for the Dollar.
*Denotes the importance of the data item *** being the highest level.
** Wednesday, Thursday and Friday bring the release of the latest Purchasing Managers’ Index surveys for the UK’s Manufacturing, Construction and Services sectors respectively. The Services edition will be the most closely-watched.
** Thursday we have the latest unemployment data from the US.
*** Friday look out for nonfarm payrolls which is generally considered a more important figure than Thursday’s jobless claims data.
Sterling is on the front foot for now, and a close above 1.5700 is a positive signal as the Pound was previously rebuffed from this level 3 times in November. In the absence of any new spike in risk aversion the dollar could remain on the defensive.
- Sterling remained on the front foot against the Euro Exchange Rate
- Pound to Euro Exchange Rate Forecast – The UK’s public sector borrowing figures came in better than expected
- Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – The US dollar exchange rate spent October on the back foot
- The Pound remained on the front foot against the Euro Exchange Rate
- Pound to Australian Dollar Forecast – The Pound has started 2012 firmly on the back foot against the Australian Dollar