Markets await crucial Bank of England minutes and German ZEW figures

Tom Tong22/Jan/2013Currency Updates

GBP

Sterling continued on its nasty tumble from Friday by falling to a 5 month low against the dollar yesterday. This fall comes before the Bank of England releases the minutes of its January meeting this week and the government reports economic growth for the fourth quarter.

However, news from the housing industry tried its best to counter the bad news as an industry report showing British house prices increased in January was released. This resulted in ten year yields of UK government bonds to rise to the highest level in a week, just in time for the Debt Management Office auction of £1.75bn of the securities tomorrow. It seems the UK needs all the good news it can get as all-in-all views are that growth for 2013 will be sluggish and a report by Ernst & Young predicts growth of 0.9% which is short of the governments forecast of 1.2%.

As for this week, probably the most anticipated event is David Cameron’s speech on the EU on Wednesday. There is huge pressure from the Conservative party and the US for Mr. Cameron to get the speech right and continue to maintain a strong relation ship with the EU.

EUR

A bit quiet on the euro yesterday; there were no major reports released from the eurozone, leaving the euro unchanged against the dollar.

Germany is set to print its ZEW economic sentiment figures at 10am GMT today and this report could have a huge impact on euro pairs. The figure for January is projected to climb from 6.9 to 12.2, reflecting a strong improvement in economic confidence. This could boost the overall ZEW reading for the eurozone from 7.6 to 14.1 and, if that’s the case, we could see a euro rally right after the release.

Later on, Draghi will have a speech at 6pm GMT. He has spoken of shifting the ECB’s focus from solving a fiscal crisis to boosting economic growth; these remarks were welcomed by a euro rally. If he adopts the same hawkish tone again, euro pairs could be rallying for the rest of the day.

USD

In the US, Obama was celebrating the beginning of his second term as president yesterday. However, now starts two months of battle where his administration will engage in a fiscal debate with Republican lawmakers who hold the majority in the US House over raising the government’s $16.4 trillion borrowing limit, steps to shrink the deficit and funding federal operations.

As a whole the dollar extended its gains over the euro and sterling but it was not all good news as the results from the consumer sentiment report last week suggests that the Fed is not going to withdraw its stimulus program earlier than it had initially planned.

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Written by Tom Tong

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