BoE and ECB leave IR unchanged. Market awaits NFP

Tom Tong07/Feb/2014Currency Updates

GBP

Sterling peaked against the greenback yesterday after the BoE kept IR unchanged and surprisingly refrained from issuing a statement adjusting its forward guidance path. Some traders had initially thought the BoE would again pledge to keep rates low for longer ahead of next weeks inflation report. Presently the BoE is anticipated to unveil a new plan to guide IR expectations in next weeks inflation report after the previous one was sidestepped by the incredibly strong recovery.

Sterling lagged against the Euro which punched up to a 5 week high against the pound. Presently next weeks BoE release could prove a modest support for Sterling as some investors are scoping for more dovish guidance, investors appear to be waiting for today’s NFP and next weeks inflation report prior to putting weighty positions on the pound. Chatter has been rife over the past weeks as to whether the pounds bull run may be over however there is still solid buying interest with most banks and hedgefunds long on both Sterling and UK equities. Its worth remembering the pound was the biggest gainer of G10 currencies in the second half of last yea, however it has been hindered lately over market hesitation towards the BoE plan of action.

Data of note today includes- industrial production, manufacturing production and total trade balance, all are expected to the upside.

EUR

Perhaps the biggest talking point surrounding the Euro over the last 24 hours has been Draghi’s decision to maintain interest rates at 0.25%. This was far less dovish than many had predicted, and as such we saw a steep rise in the EURO yesterday against many of its pairs. The comparison between this statement to the one in January shows a far more optimistic outlook for the economy, with deflation risks diminished.

Euro traded mostly sideways over the Asian session with the markets taking account of the gains made by the end of UK trading. German Trade Balance came out 14.2b lower than the forecast of 17.3b, however German Industrial Production only data out today.

USD

A turbulent week for the dollar will culminate today in the NFP report. US cheerleaders will be looking for a bounce back from December’s terrible figure, with the market going for a 185K reading. Anything less will be hugely disappointing and put more pressure on the Fed to ease the rate of tapering, especially given the bullish dismissal of last month’s reading as an anomaly.

Yesterday the dollar pushed up against the pound, ending the day half a percent stronger. The greenback however fell fowl to an outstanding market reaction to Mario Draghi and the ECB, losing a whole cent in half an hour.

The action kicks of at 1.30 – expect volatility.

RoW

Last week saw Japanese stocks sold off at the fastest pace in four years, as the Government forecast inflation to level off at 1.25% for the year. This week saw investors cautiously buy back in, culminating in a 2.2% move to the upside from the Nikkei 225.

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Written by Tom Tong

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