Sterling extends gains as market await UK budget
20/Mar/2012 • Currency Updates•
Sterling extended gains against the USD from Friday with their slightly softer than expected US inflation data. In addition, Sterling climbed to a one month high against the Euro and a nine month high against the JPY. This is in reaction to a run of improved UK data with expectations for less doveish B of E minutes, reducing expectations for more QE, and few negative surprises in the UK budget on Wednesday setting a better tone. Furthermore, YouGov’s poll on consumer confidence, the HEAT index, was at an 18 month high almost at levels set two year ago. On top of all this, the Independent Office for Budget Responsibility are expected to be releasing tomorrow, UK growth figures at 0.8% this year compared to 0.7% in November. In regards to the National Loan Guarantee Scheme which is plan to boost economic growth, HSBC will not participating as well as Co-Operative Financial Services and Clydesdale Bank. However, this will still go ahead with 20bn of guarantees in 5bn tranches over the next two years.
Investors showed little faith in Greece’s ability to cut its colossal debt after an auction yesterday. The new price – effectively the amount expected back on bonds – was a clear sign investors do not believe the latest bailout has put Greece on a solid financial footing. This pushed German bond yields to the highest level since early December on concern that Greece will bring their debts to sustainable levels. Portuguese bond yields also rose to over 14%, not seen since the start of February, as fears grew that they may need a second bailout. Construction output across the EU fell 0.8% in January compared to December, warning that the sector is unlikely to recover for some time. In addition, Italian manufacturing sector shrank further, highlighting the severity of the recession Italy is facing.
The dearth of significant data in the coming days means there will be few opportunities to evaluate the US and global economy. There is however a changing correlation between the USD and risk assets and little to curb the USD slide. Asian currencies have strengthened in regards to this position.