United States Dollar: Tuesday was another day of sterling weakness against the dollar as GBP/USD fell to a monthly low of 1.6141 as traders digested the weaker than anticipated BRC retail sales numbers. It wasn’t solely a case of GBP weakness however, with the USD managing to firm up across the board on the back of a modest fall in the price of oil and safe haven flows. The rally in the greenback was also seen to be attributed to a report from a U.S consulting firm which raised the possibility that we could see some dissent within the FOMC from officials who are not in favour of further QE. Today we see the release of U.K. trade balance data, which is expected to show some improvement on the December numbers which were affected by the adverse weather conditions, and with little market moving data from the U.S. expect price action in the greenback to be dictated by the price of oil and risk flows driven by the political turmoil within the Middle East region. Sterling traders continue to set their sights on the BoE interest rate decision tomorrow. GBP/USD opens this morning at 1.6170.
– We expect a range today in the GBP/USD rate of 1.6130 to 1.6250
– We expect a range today in the GBP/EUR rate of 1.1620 to 1.1690
– We expect a range today in the GBP/AUD rate of 1.5960 to 1.6070
– We expect a range today in the GBP/NZD rate of 2.1830 to 2.1930
Euro: The single currency continued to exhibit weakness against the USD on Tuesday as the markets focus shifted back towards the Euro zone sovereign debt crisis, with 10-year government bond yields for Greece, Portugal and Ireland hovering around record highs. Despite German factory order data coming in stronger than expectations and some hawkish comments coming from ECB officials, the euro traded with a bearish tone for most of the day which aside from the underlying concerns regarding the region’s economic stability, could be attributed to a natural pullback after the very heavy euro buying of recent days as investors took profit on long EUR positions. Against sterling, the 17-nation currency remained strong with yield differentials still working in its favour and movement in the GBP/EUR pair essentially range bound as the market continued to weigh up the hawkish intentions of the ECB (relative to that of the BoE) versus the sovereign debt concerns of the region, with the latter preventing more significant declines in the pair. The main economic release from the Euro zone today is German industrial production, and investors will also be watching the Portuguese debt auction. GBP/EUR opens this morning at 1.1650.
Aussie and Kiwi Dollars: Tuesday saw GBP/AUD move between 1.5950-1.6050 and GBP/NZD move between within a 2.1800-2.1900 range with impetus for a break in either direction not prevalent. Although Tuesday saw global equities positing decent gains, disconcertingly for AUD bulls the currency posted its fifth consecutive fall against the USD, which could point to a general change in sentiment regarding the currency. On the day the NZD was one of the only currencies to appreciate against the USD as investors began covering short positions ahead of the RBNZ monetary policy announcement on Thursday. Overnight, both south pacific currencies have come under some pressure, after the release of weaker than expected Australian home loans data and for NZD traders the prospect of tomorrows widely anticipated interest rate cut looms heavy. GBP/AUD and GBP/NZD open this morning at 1.6030 and 2.1860 respectively.
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