Good morning and welcome to today’s foreign exchange market commentary on Monday the 19th of March 2012
The UK
The pound strengthened versus the US dollar hitting a high of 1.5880 from 1.5740 on Friday after CPI data released in the US caused a flurry in dollar selling.
The move was stopped at the 200-day moving average, drifting back down to 1.5820/30 at the close of trading. Key levels to watch are 1.56 and 1.60, until either of these is broken, analysts expect trade to remain choppy.
GBP/EUR continued to trade above the psychological 1.20 level, reaching 1.2055 by midday but dropping back and finding support at 1.2006.
Reports emerged the UK government will use a one-time £28 billion ($44.3 billion) windfall that it will receive when its takes over the Royal Mail’s pension system next month to help pay down the country’s debt.
With the markets paying close attention to Wednesday’s UK budget, Chancellor George Osborne said Sunday, the bulk of the measures will be aimed at helping low and middle income earners.
Globally
The US dollar weakened broadly on Friday, as the release of soft US inflation data halted a rally which had pushed the dollar to an 11-month high against the yen and a one-month high against the euro.
EUR/USD moved through resistance levels at 1.3090, instantly jumping to 1.3135 after the US CPI data release, gaining 0.71% and hitting a high of 1.3187. A break above 1.33 would be required to give a true indication of this rally’s strength.
Federal Reserve President Charles Evans has commented that US monetary policymakers “can and should take additional steps” to promote faster economic growth, fuelling speculation for more QE
Preliminary Consumer Sentiment in the US also came out negative at 74.3 against forecasts of 75.8
On Friday a report from the IMF indicated that Greece will need a decade or more to address competitiveness and could face a disorderly euro exit with any setback requiring more debt restructuring.
USD/JPY was also affected by CPI, falling to 83.52 from a session high of 83.94, US bonds helped a rebound to 83.75 but finished on a two-day low of 83.17
Despite weakening on Friday, according to Commodity Futures Trading Commission data, traders anticipating a stronger dollar against its main counterpart currencies have outnumbered those predicting a drop for 26 consecutive weeks, that’s the longest streak of confidence in the USD for 13 years.
Data Releases
12:00 House Price Index (HPI), which is a leading indicator of the health of the housing sector in the UK is due at 12pm
12:35 Federal Reserve William Dudley is due to speak.
Today Both in Europe and the US, data is quite light today so all eyes will be on the remainder of the week where we have Tuesday’s UK y/y CPI release, the release of the minutes for the latest MPC meeting as well as the UK Annual Budget due out on Wednesday at 12.30.
