GBP/USD hits 12 week high as cable closes in on $1.62 handle

US Dollar:

The greenback lost ground against all of its major counterparts on Tuesday, with the USD/JPY tumbling to a low of 81.46, but we may see the U.S. dollar recoup the overnight losses as manufacturing in the world’s largest economy is expected to expand at a faster pace in January. The ISM Manufacturing index is forecasted to increase to 58.0 from 57.0 in December, and businesses may continue to ramp up their rate of production this year as the rebound in economic activity picks up steam. However, as equity futures foreshadow a higher open for the U.S. market, the rise in risk appetite may dampen demands for the greenback, and the dollar may struggle to hold its ground as risk sentiment continues to dictate price action in the currency market.

DATA: USD Mortgage applications

Pound:

The British Pound advanced to a fresh yearly high of 1.6141 despite the slew of mixed data out of the U.K., and the GBP/USD may continue to retrace the decline from back in November as investors speculate the Bank of England to gradually normalize monetary policy later this year. Mortgage approvals in the U.K. increased 42.6K in December to mark the slowest pace of growth since March 2009, while manufacturing expanded at a record pace in January, with the PMI reading advancing to 62.0 in January from a revised 58.7 in the previous month. As the recovery gradually gathers pace, the National Institute of Economic and Social Research expects the BoE to hike the benchmark interest rate three times this year, but there could be a growing split within the MPC as the tough austerity measures dampens the outlook for future growth. As the GBP/USD maintains the upward trend from earlier this month, the pair looks poised to test 1.6200-20, the 23.6% Fibonacci retracement from the 2009 low to high, but we may see the pair consolidate over the near-term if we see the daily RSI continue to hold below 70.

DATA: GBP PMI (JAN)

Euro:

The Euro rallied to a high of 1.3774 on Tuesday as the economic docket reinforced an improved outlook for future growth, and the single-currency may push higher going into the North American trade as the EU looks at alternative measures to restore investor confidence. Unemployment in Germany weakened 13K in January amid forecasts for a 10K drop, while the jobless rate unexpectedly slipped to 7.4% from 7.5% in December to mark the lowest reading since November 1992. At the same time, manufacturing in the Euro-Zone expanded at a faster pace during the same period, with the PMI reading advancing to 57.3 from 57.1 in the previous month, and the recent developments may encourage the European Central Bank to re establish its exit strategy later this year as the economic recovery gathers pace.

DATA: EUR PPI MoM/YoY (DEC)

General:

The Dow Jones industrial average closed above 12,000 Tuesday for the first time since June 2008. The milestone was another mark of recovery from one of the worst financial crises in the nation's history and a sign that investors expect the economy to keep growing instead of taking a second dip into recession

For more information or to request a call back click here