Euro rises. Change of guard at BoE. Market poised for Yellen debut.

Tom Tong19/Mar/2014Currency Updates

GBP

London closed with sterling down against the dollar and euro. The movement was notable and sterling now flutters close to 3-month lows against the euro and monthly lows against the dollar. There are whispers that the sterling bull run is starting to unwind, however currency markets are notoriously fickle and short term volatility easily corrected.

Specifically doubts have centred on the pincer of an improvement in the British economy and prospect of an interest rate rise next year, traders and analysts continue to argue over whether these situations are fully priced into sterling. This unease is making it difficult for sterling to take upside movement, illustrated again yesterday with strong British export figures failing to lend sterling support. The UK recorded the strongest export growth in the EU last year, currency markets shrugged it off when typically you would expect such data to lend sterling support.

The BoE was naturally in the limelight yesterday, Carney, the innovator, has ushered in a new breed to head up the BoE. Two new deputy governors got the nod yesterday. However, senior officials faced the chop and previous failings were criticised. The two key appointments to focus on are Nemat Shafik and Ben Broadbent. The pair will have huge influence on BoE future policy with Nemat Shafik being a key decision maker regarding QE.

Big day for Sterling today- BoE minutes, average earnings and claimant count all set for release at 9.30AM. Later, Osborne will scuttle out of the trenches of Downing Street and deliver his war cry for the new budget. Kick-off is 12.30PM GMT today.

EUR

London closed with the euro again rising against both the pound and dollar. The euro continues to take leverage from dollar weakness and a shift in sentiment among investors following broadly improved data out of the Eurozone and the ECB continuing to make the right noises regarding monetary policy.

At the start of 2014 the euro was written off as a likely loser. However the unexpected strength in the Eurozone recovery, the blocs strong account balance and an absence of fresh easing steps from the ECB, have created a perfect storm for the euro to peak across the board.

Yesterday again illustrated the dexterity of the euro, a poor German ZEW survey saw it scuttle down however losses were quickly reverted as traders happily bought on the dips. Also figures yesterday revealed the Eurozone had a trade surplus in January, however this stems from a fall in imports driving the move from the deficit recorded last year.

Data of note today includes – construction output.

USD

London closed with the dollar up against the pound and down against the euro. The movement against sterling was fair and we now have the dollar trading at monthly highs against sterling. Losses against the euro were minimal. Volumes were slightly lower than usual, likely due to the bundles of data and central bank activity set for today making traders jumpy and wary about putting on significant positions.

Today is the day both currency and stock markets have been fretting over. Yellen is poised to hold her first news conference as Fed chair. The Fed is on track to reduce bond buys to $55bn. US central banks may also rewrite the interest rate promise. The curtain is also likely to rise on new economic and rate projections for the US economy these will also focus on unemployment levels and the expected pace of growth.

The street is confident that today will bring another reduction in QE to the tune of $10bn – reducing overall monthly bond buys to $55bn. Also a slight tinkering of guidance of the likely timescale for a revision in interest rates is anticipated. These actions would be a sign of confidence in the state of the US economy, equally they would represent continuity at the Fed as Yellen takes up the reigns.

The Fed is set to announce its decision in a statement at 18.00 GMT, following 30 minutes later by Yellen’s conference debut.

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Written by Tom Tong

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