Sterling slips against dollar on low confidence

Tom Tong29/Mar/2011Currency Updates

GBP

Sterling suffered a hangover from last week’s weak data releases yesterday as it slipped against the dollar and remained fairly range bound against the euro. The recent spate of weak data has raised question marks about how quickly the BoE will be able to raise interest rates to combat the spiralling inflation figures, as illustrated by last Tuesday’s CPI figure. There was no significant data release in the UK yesterday but this morning we will see the (YoY) GDP, mortgage approvals and money supply figures. This set of data is expected to be on consensus with the market opinion but any surprises, especially in GDP, could see some volatility today. This week we will also hear from three of the MPC members who are delivering speeches at various occasions during the week. The text of all three speeches will no doubt give us more insight into the thinking of MPC members in light of last week’s CPI numbers, giving an indication of possible voting moves in the months to come.



USD

The dollar started the week in a robust fashion with the dollar index, which gauges the performance of the USD against a basket of major currencies, up slightly for the day at 76.150. This move may be attributed to the better than anticipated consumer spending data towards the end of last week, suggesting that the Fed may have more scope to end its ultra-loose monetary policy than the market had thought. This morning the rate support for the dollar has retracted slightly as the market reflected on the speech of a Fed official yesterday afternoon that the US economy was still in need of support from the Fed and full QE2 programme of bond purchases. This view has been caused by the recent housing deflation in the US and a dip in confidence has been seen since the Japanese earthquake, tsunami and nuclear incident. This afternoon we will see the US consumer confidence figures, which if upbeat could see the dollar push sterling back beneath the key support of 1.60.

EUR

The euro received a boost yesterday as ECB President Jean-Claude Trichet continued his hawkish rhetoric by saying the central bank is set to raise interest rates as soon as April. These comments went some way to deflecting from the more negative tone of news coming out of the Eurozone as Portugal moved closer to requiring a bail out as its borrowing costs on the international bond market hit a euro lifetime high, due to downgrades of its banks credit worthiness. News out of Germany was also fairly downbeat as the party of current leader, Angela Merkel, was routed in local elections. Uncertainty in the largest country in the Eurozone is unlikely to bode well for the single currency. Elsewhere, the current spike in oil prices has caused speculation that oil producers will diversify away from the dollar, which could benefit the euro in the medium term. Today is a quiet day for data releases in euro but does see the release of the latest German consumer confidence data.

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Written by Tom Tong

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