Good morning and welcome to today’s foreign exchange market commentary on Wednesday, the 4th of April.
The US Federal Reserve caught the market on the wrong foot yesterday after March FOMC minutes suggested that the central bank would withhold further monetary stimulus unless the economy lost momentum. This contradicts Bernanke’s speech last week where he said the Fed would continue with ‘accommodative policies’ till the labor market showed solid signs of growth. So it was kind of a mixed signal that confused the market and spooked all major US indices yesterday.
Talking of central banks, the European Central Bank has brought forward its regular monthly meeting due to Easter holidays and would be holding its policy-setting meeting on Wednesday. Analysts say the ECB is unlikely to announce any major policy decisions and would rather assess the impact of the series of recent anti-crisis steps. Interest rates are expected to remain unchanged at 1 percent.
Though analysts and central banker agree that the recent liquidity measures have been a success, they say the money put on table will not buy a lasting solution and expressed concern on economic reports that show the currency union plunged into recession in the first quarter of 2012. Also weak monetary and private-sector credit growth remains a cause for worry. They point out that all ECB can do is buy some time and use it to root out the causes of the crisis.
Meanwhile, British services sector made a smart comeback by registering its strongest growth in nearly two years, according to the closely watched MARKIT/CIPS survey. March reading rose to 55.3 compared to 53.8 in February, much ahead of the economists’ forecast of 53.4. The services sector, accounting for nearly 75 percent of the British economy, expanded by 0.7 percent during the quarter, thus driving the GDP up by 0.5 percent in Q1. This corresponds with the British Chamber of Commerce’s projection that said the UK would avoid a double dip recession this year, though growth will be sclerotic.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2042
GBP/US$ – 1.5889
GBP/CHF – 1.4506
GBP/CAN$ – 1.5762
GBP/AUS$ – 1.5462
GBP/ZAR – 12.321
GBP/JPY – 131.44
GBP/HKD – 12.3374
GBP/NZD – 1.9474
GBP/SEK – 10.587
EUR: The release of FOMC minutes sent the EUR/USD lower yesterday as a short-squeeze resulted in heavy demand for the greenback. Eurozone’s PPI number had little effect on the single currency as the market remains focused on today’s ECB interest rate decision. Despite strong UK construction PMI numbers yesterday, the GBP/EUR pair moved lower before settling at 1.2042 for the day. No policy changes are expected in today’s ECB meeting as the GBP/EUR pair opens at 1.2063 this morning.
USD: The greenback surged against most of its counterparts following the release of FOMC minutes yesterday. The GBP/USD pair received negligible support during European session on stronger UK construction PMI data, but the pound lost ground as the day progressed and tumbled to 1.5891 following the FOMC release. The dollar is expected to maintain its positive bias as the market eyes US employment numbers on Friday for more signs of optimism. The greenback is expected to be influenced by non-ISM numbers due today ahead of Friday’s data release. The GBP/USD pair opens at 1.5900 this morning.
