United States Dollar: The US dollar continued to weaken yesterday on the back of further talks surrounding quantitative easing measures and weaker than expected employment and trade balance figures. The US trade deficit widened to 46.3 billion (versus an expectation of an increase to only 43.5 billion), highlighting the continuation of bad economic fundamental data from the States. This was further compounded by worse than expected unemployment data, which showed unemployment claims rising by 462,000, versus an expectation of only 448,000. GBP/USD traded as high as 1.6067 yesterday before selling off to levels around 1.5980, most likely on the back of short term profit taking. We open stronger again this morning at 1.6050. Today looks to be a data heavy day from the US, as we approach 13:30 GMT we have a number of releases that are likely to provide short term volatility – Retail Sales, CPI, Empire Manufacturing Index, Business Inventories, Consumer Sentiment and to top it all off a speech from Bernanke at 13:15 GMT.
– We expect a range today in the GBP/USD rate of 1.5960 to 1.6150
Euro: There is ongoing debate as to whether the Euro is currently overvalued, and the two schools of thought / argument, are this. Firstly, those who believe the Euro is overvalued think so because of an undervaluation of risk. Cheap dollars flooding the market, looking for a home to earn yield, are finding themselves in emerging markets, and markets in which there have been recent volatile sell-offs, such as the Eurozone. Those who advocate further purchases of Euro’s argue that due to recent policy changes and the inception of the Financial Stability Fund (FSF), the risk of a sovereign default was overblown, and thus the recent Euro sell-off was overdone. Some analysts are revaluing forecasts to levels up at 1.4500 before year end. All these factors combined, there is a great possibility that the rise in the Euro will continue, even more so if expected levels of QE deviate from expectation. EUR/USD traded as high as 1.4121 yesterday before selling off to levels around 1.4020 overnight. We open stronger at levels back above 1.4100 this morning. Little out in the way of Euro data today but US releases are likely to move markets. Against the Pound the Euro is still strengthening as investors favour the momentum of EU assets over sterling denominated products.
– We expect a range today in the GBP/EUR rate of 1.1300 to 1.1420
Aussie and Kiwi Dollars: After rallying to levels just shy of parity against the US dollar, the Aussie sold off slightly overnight to levels around 0.9900, most likely on the back of profit taking again ahead of data releases out of the US today. The recent rally in gold prices has lifted mining stocks down under, and despite the Aussie being so strong, and thus putting downward pressure on exports, economic fundamentals remain strong. AUD/USD opens at 0.9960 levels this morning. In New Zealand similar attitudes towards risk sentiment is driving the Kiwi in the short term, with NZD/USD being very volatile in the last 48 hours. The pair fell to levels around 0.7550 from a high yesterday of 0.7640. We open this morning at 0.7580.
– We expect a range today in the GBP/AUD rate of 1.6050 to 1.6200
– We expect a range today in the GBP/NZD rate of 2.1070 to 2.1270
Data Releases:
- AUD: No data of note
- EUR: CPI / Trade Balance
- GBP: No data of note
- NZD: No data of note
- USD: CPI / Trade Balance / Retail Sales / Business Inventories / Consumer Sentiment
