Sterling loses ground in-light of positive outlook from Euro-zone

Tom Tong17/Jul/2013Currency Updates

EUR

Yesterday Euro-zone data releases included: CPI for June, showing no change from the consensus at 1.6% and core CPI at 1.2%. The ZEW survey showed a worsening of economic sentiment out of Germany relative to the consensus and the previous readings. However for the Euro-zone on the whole we see an improvement on consensus which was already predicting an improvement on the previous figures. This aggregated to a gradual strengthening of EUR throughout the day yesterday.

Today is a relatively quiet day for the euro in terms of expected data release. With Construction data to be released at 9am, and a 10y German Bond auction today, Euro is not expected to exhibit large volatility owing to these data releases.

GBP

Strong US CPI sent UK gilts upwards yesterday pushing the yield on two-year securities to the lowest in almost two months. The pound weakened to a four-month low versus the euro.
At his first policy meeting as governor of the Bank of England, Mark Carney appeared keen to establish his dovish credentials by providing the market with forward guidance for the first time, in an effort to reduce expectations of any tightening.

There is speculation going round Carney may tie central bank guidance to economic developments.

The Gilt has been hit by a rigging scandal yesterday after it is alleged traders have been fixing the Government bond market after suspicion rose after an auction in October 2011, Fisher said there was a clear case of market manipulation because one Gilt was moving in opposite direction to the other in the market.

All eyes will be on the Bank of England Minutes this morning to see what gets released and how the MPC members vote, also Claimant count and ILO unemployment Rate monthly figures are due out at the same time.

USD

This morning the dollar strengthened with Federal Reserve Chairman Ben Bernanke due to testify to Congress today. Yesterday USD dropped against sterling and other major currencies but began to stabilise around the afternoon session.This was based on consumer price index coming out better than expected up 0.2% to 2.9%

Today Ben Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress, starting with the House Financial Services Committee in Washington. Also a main focus will be the bank of England minutes out later this morning, if the view from the minutes is dovish it is possible sterling will extend losses.

As mentioned the top tier data released out of the US will be Bernanke’s semi-annual monetary report, and the US Federal Reserve Releases Beige Book later this evening

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Written by Tom Tong

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