United States Dollar: The US dollar strengthened into the close on Friday, as concerns regarding Irish debt remained, and speeches by notable central bankers alluded to tougher times ahead despite good GDP data in the short term. GBP/USD hit a low around levels at 1.5940 before moving back to 1.6000 in the early hours of this morning, most likely on the back of a move into risk due to positive bailout news from Ireland (read below). Despite a short term improvement in risk sentiment, and firm consumer data out last week in the form of retail sales in the UK, the introduction of the 20% VAT rate at the beginning of 2011 is likely to put downward pressure on spending, weighing on the pound. In the US criticism of the Fed’s recent round of quantitative easing seems to have subdued somewhat, and this is likely due to the improvement of a number of key economic indicators and a strengthening of the US dollar on a trade weighted basis. Going forward, if such indicators continue to improve, pressure on the Fed when using quantitative measure is likely to subside, and they may feel more comfortable printing even more cash if things turn sour.
– We expect a range today in the GBP/USD rate of 1.5950 to 1.6150
Euro: Dominating the headlines late yesterday was news of the Irish bailout, with European sources suggesting the total package could be worth up to 90 billion Euros. Whilst the exact details are not yet known, it is likely that Ireland will draw on a pool of loan funds to prop up its ailing banking sector, which is drawing on huge amounts of capital. European finance ministers welcomed the Irish request, according to the Telegraph this morning, although it is clear that in return for loan funds Ireland will need to overhaul its banking sector and look at measures to instill confidence in investors and to calm markets. The Euro reacted positively to the news, with EUR/USD moving from a low of 1.3610 on Friday to a high of 1.3780 this morning. In addition to pressure from the EU over budget restructuring, the Irish government received a letter from executives from US companies based in Ireland, warning them not to raise the rate of corporation tax and damage investment in Ireland. Irish ministers must be hoping that budgetary and banking sector shake-ups will placate the “powers that be”, so they don’t need to consider changing corporate taxation.
– We expect a range today in the GBP/EUR rate of 1.1600 to 1.1775
Aussie and Kiwi Dollars: The Aussie pushed higher on the news of the Irish bailout package, and improved risk sentiment pushed demand for the high yielders which had suffered during the nascent Irish worries. Despite an increase in the reserve requirement for Chinese banks, investors saw the Aussie as a good buy, driving it from 0.9816 to levels above 0.9950 this morning. In New Zealand the Kiwi sold off sharply this morning on the back of a credit outlook update from Standard and Poor’s, the ratings agency. S&P revised its outlook on the nation’s foreign currency sovereign credit rating to negative, from stable. NZD/USD, which had rallied to levels above 0.7830 before the news, dropped to 0.7720 before recovering slightly to 0.7760 where we open this morning. We have inflation expectations out tomorrow morning which may get the Kiwi back on track and drive rate hike expectations.
– We expect a range today in the GBP/AUD rate of 1.6040 to 1.6240
– We expect a range today in the GBP/NZD rate of 2.0550 to 2.0750
Data Releases:
- AUD: No data of note
- EUR: ECB President Trichet Speaks
- GBP: No data of note
- NZD: Inflation Expectations
- USD: No data of note
