Sterling plunges against majors

US Dollar

The dollar took a backseat yesterday as the currency markets were dominated by two headlines—sterling drop¬ping on very weak GDP numbers and the euro benefitting from a successful Euro bond. This saw the greenback post gains on the pound as an impressive two and a half cents was seen in the bucks favour as GBP/USD hit $1.5749. It was not all one way traffic for the greenback though as EUR/USD saw a move in the single curren¬cies favour as the dollar gave up over a cent on the euro. A successful Euro bond auction saw the euro pur¬chased and lead to gains overnight in Asian trade. In other news, US President Obama said that the US must cut spending because the nation’s deficit “is not sustainable”. He called for a freeze of some federal spending and for closing tax loop-holes to use savings to lower the corporate tax rate. Data 15.00: New Home sales 302k from 290k. 19.15: Fed Funds Rate expected <0.25% unchanged & FOMC Statement.

Pound

A spectacular move downwards for the pound yesterday saw the UK currency hit a two and a half month low against the euro and a two week low on the dollar. Players were poised at 09.29 yesterday morning, waiting for the UK GDP numbers to be announced, and when the figure hit, it was a signal for the UK currency to be sold off aggressively. The UK’s economy suffered a shock contraction in the last three months of 2010, figures showed. The economy shrank by 0.5% in the October to December period. The severe weather hit activity in the quarter, but the ONS said even if the weather impact had been excluded, activity would have been flattish. The contraction follows growth of 0.7% in the previous three months and 1.1% in the second quarter of 2010.
For those clients who had been waiting to buy the pound from other currencies, yesterday saw Voltrex’s biggest sterling purchases for the last 2/3 months. The pound fell against the euro by two cents as we saw GBP/EUR drop from 1.1731 to 1.1530, continuing its weakness into this mornings session. Cable also suffered as the pound gave away over two and a half cents as GBP/USD fell from $1.5980 to $1.5749. In a speech last night by Bank of England Governor Mervyn King, he pointed out that he was more concerned with inflation than the GDP fall. The UK’s “uncomfortably high inflation” is of more concern to the Monetary Policy Committee (MPC) than the surprise fall in gross domestic product, Mervyn King, the Governor said on Tuesday night.
Data 09.30: MPC Meeting Minutes expected 1-0-8 unchanged from last month.

Euro:

The euro continued its renaissance yesterday as gains were seen across the board for the single cur-rency. A shocking GDP number released in the UK saw the pound fall and the single currency just lapped it up. A two month high for the euro saw the 0.8660 level breached against sterling. A move higher on the greenback was also posted as EUR/USD gained a cent to home in on the $1.37 handle, that level being breached in early morning trade. Support for the euro came overnight as Asian investors lead massive demand for the first Euro bail-out bond. Asian and Middle-East investors have thronged to buy the first issue of AAA-rated bonds by the eurozone’s new bail-out fund, marking a key moment in the elevation of Europe’s monetary union. The auction of €5bn (£4.3bn) of five year bonds to fund the first stage of the Irish loan package was nine times oversub¬scribed, reflecting appetite for bonds ranked with core German or French debt but offering higher returns.
No major data.

General:
• New Zealand Interest rate decision due overnight expected at 3.00% unchanged

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