Pound:
Sterling plunged to a 5-1/2 month low versus the dollar yesterday after UK consumer price inflation unexpect-edly eased, minimising any slim chances of a near-term interest rate rise from the bank of England. The pound was already under pressure versus the dollar as concerns the euro zone debt crisis is spreading to Italy prompted investors to safe haven currencies. Consumer prices fell 0.1% last month, taking the annual rate of inflation to 4.2%. Analysts had expected the annual rate to hold steady at 4.5%. The UK goods trade deficit also defied forecasts to widen unexpectedly in May to 8.5 billion pounds. As a result, the overall outlook for sterling remains bearish given expectations a dovish Bank of England will hold off with any rise in interest rates until late 2012 and worries about euro zone debt and a global slowdown. That drives investors to seek safe haven cur¬rencies like the yen, the Swiss franc and the U.S. Dollar and weighs on sterling, which is considered to be at the riskier end of the currency spectrum.
Data 09.30: Claimant Count Change.
Euro:
The Euro is expected to remain under pressure today as Ireland’s credit rating was downgraded to junk status last night by Moody’s Investor Services, one of three such agencies which dominate the global ratings industry. Moody’s gave its main reason for the downgrade as the growing likelihood of the EU imposing losses on sover¬eign bond holders of weak countries. Yesterday we saw the Euro bounce back from a four month low of 1.3836, but the single currency is likely to face additional head-winds over the near term as the EU struggles to contain the sovereign debt crisis. As European policy makers fail to draw up additional measures to stem the heighten¬ing risk for contagion, the lack of urgency amongst the group continues to dampen the outlook for the region, and the exchange rate may continue to push lower throughout the remainder of the week, as should the results of the commercial back stress test highlight a dour outlook for the European financial system.
No major data due today.
Dollar:
Looking ahead to this afternoon, the spotlight turns to the Federal Reserve Chairman Ben Bernanke as he deliv¬ers his semi-annual testimony on monetary policy to the US House of Representatives. While the central bank chief’s prepared remarks are likely to toe a familiar line, traders will pay close attention to clues about the likeli¬hood of further stimulus in his response to lawmakers’ questions. A strong statement squashing budding hopes for QE3 (at least for now) would stoke worries of a broad-based slowdown in the second half of the year, weigh¬ing on risk appetite and spurring demand for safe haven currencies anew.
Data 15.00: Fed Chairman Ben Bernanke testifies.
General:
• Higher Chinese industrial production and output figures push Australian and New Zealand dollars higher immediately after the report.
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GBP/USD 1.5955
GBP/EUR 1.1355
EUR/USD 1.4045
GBP/JPY 126.45
GBP/AUD 1.4945
GBP/NZD 1.9320
GBP/ZAR 10.91
GBP/CHF 1.3235
GBP/CAD 1.5340
GBP/SGD 1.9500
GBP/THB 48.20
GBP/HKD 12.4180
red-down; blue-up (snap shot)
These rates are for indication purposes only.
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