Written by Jon Beddell on February 20th, 2012
The Sterling/Dollar rate will be largely driven by investor risk appetite.
Foreign Currency Market Update – GBP / USD Update
Having rallied strongly from 1.5300 in the latter half of January Sterling finally stalled around 1.5900 a few days ago and we dipped back to 1.5650 last week. We found support at this level and ended the week very much on the front foot.
January’s Jobless Claims data showing that the British claimant count had risen by 6,900 – more than twice the expected level last month. Tuesday’s CPI Inflation numbers showed that the rate of UK price rises had fallen to an annualised 3.6%, as per expectations. This makes the chances of a near-term Bank of England interest rate rise even more remote, placing further downside pressure on Sterling. However, as the figure was already expected there has been no visible impact on the exchange rate. The week ended on a slightly brighter note for the Pound, with the release of the latest UK Retail Sales numbers, which showed an unexpected increase of 1.9% in the level of British shop sales last month.
A surprise standstill in US industrial production gave Sterling a leg up on Thursday. Production was expected to show 0.7% growth in January, but came in at exactly zero. All other US data came in relatively in line with expectations, including a consumer price index reading at 2.9%.
The Sterling/Dollar rate will be largely driven by investor risk appetite, which in turn will be fed by the latest instalment of the Euro crisis saga. Eurozone finance ministers meet in Brussels today to discuss the Greek bailout which is yet to be fully agreed. Greece need €130bn to avoid default in mid March when a large repayment becomes due. A €110bn tranche was paid in 2010 but wasn’t enough to plug the hole, which currently stands at 160% of GDP. Eurozone ministers want this figure cut to 120% by 2020, and Greece have implemented a searing series of austerity measures in an effort to achieve the target, provoking rioting in Athens last week. The bailout will probably be passed, but there remains a question mark over whether the austerity measures will be enough to bring Greece’s public finances bank into line, and also over how the Eurozone can apply sufficient pressure to ensure the Greek government stick to new fiscal rules.
*Denotes the importance of the data item *** being the most important
*** The all important meeting of EU finance ministers begins at 2:30 today.
** Tuesday morning sees the release of January’s UK Public Sector Borrowing figures – they are expected to show that the British government managed to pay off £6.3bn of its debt last month – a lower number than this could hurt Sterling.
*** Wednesday morning’s release by the Bank of England of the minutes of its February MPC meeting will be closely-monitored by analysts for clues on the future direction of British monetary policy.
** US initial jobless claims at 13:30 – This is usually a closely watched item.
*** Friday morning sees the release of the official Q4 GDP figures for the UK economy – a quarterly contraction of 0.2% is expected. Anything worse than this could spark a Sterling sell-off.
The rebound from 1.5650 adds credibility to the Pound after January’s rally. We now look poised to at least attempt a run on the 1.5900 level that marked the recent highs. A break above there would have us targeting 1.6170 (October’s high) and then the August 2011 high at 1.6620. On the downside we would give up on our short term positive Sterling bias if the market fell below 1.5650.
- Pound to Euro Exchange Rate Forecast – Eurozone Gross Domestic Product sank to -0.3% in the fourth quarter
- The Pound found support in the region of 1.5650 against the U.S Dollar
- Credibility problems for the ECB?…
- Daily Foreign Exchange Rate Forecast – the Pound soared to the highest level since January against the U.S Dollar
- Sterling, US Dollar and Euro Exchange Rate: The Pound to US Dollar Exchange Rate grew by 0.52% last week