Sterling retreats against majors as markets await key UK economic data

US Dollar

A continued gain in risk appetite saw the dollar lower yesterday against the majors except against sterling. Asian equity markets are mainly higher overnight, tracking the 1% gains in the Dow and Nasdaq indices as market consensus firmed. This usually leads to a weaker greenback as investors sell the safe haven dollar in favour of greater returns in more riskier assets. The dollar has now lost over a cent this week against a resur¬gent euro as we saw the currency pair post a two month low of $1.3685 in the euros favour. It was not all bad news for the dollar as the greenback did hold firm against sterling and has now taken half a cent of the UK cur¬rency. Cable has lost ground in the run up to key economic data due today, was players bracing themselves for possible weak numbers UK side. Data 15.00: CB Consumer Confidence 54.4 from 52.5.

Pound

Cable was holding firm yesterday and sterling sellers could have been forgiven for hoping for the pound to stand its ground on a sell off in the value of the greenback. This morning however has seen investors tread carefully as we await key economic data due at 09.30 in the UK. The consensus is for a weaker number in GDP q/q than last moths 0.7%. The expected number is 0.5%, but some are expecting to see a figure as low as 0.2%. If the figure comes in low, it may give the Bank if England Governor Mervyn King room to breath, and take the foot of the interest rate pedal to raise interest rates sooner rather than later. The inflation numbers re¬leased last week ramped up the intense debate of when the BoE should start raising rates, which usually leads to a stronger currency. For those clients who have been waiting for a chance to buy sterling from euros or dol¬lars, it may be worthwhile taking obtaining an exchange rate today. The pound’s position against the euro has been under pressure following on from last week, and that momentum has continued into this mornings trade. We have now fallen below the 1.17 handle, as the currency pair not only weakens in anticipation of today's key data, but also on a firmer view that the sovereign debt story recently drowning the single currency has been pushed to one side—for now. The other key data due today will be the public sector net borrowing figures also due at 09.30am. Also this evening we have a key speech by the BoE Governor Mervyn King.
No major data. Speaker 18.00: MPC’s Sentence

Euro:

Clients who have been holders of euros over the last few months must be enjoying the renaissance of late in the value of the single currency as we have now seen a two month high posted against the dollar as we trade at $1.3685 and also a three week high against sterling. A combination of movements in global markets and changed perception in market views has taken the pressure of euro selling. The sovereign debt story has been pushed to the back, for now. A gain in risk appetite has seen the dollar sold off to the benefit of the single unit, and a wobble in sterling value as we await key UK GDP numbers today has all lead to euro buying. Spain has also been trying to address the ongoing issue of deflection market sentiment away from its own debt story as it sets in motion a partial nationalisation of its crippled savings banks, or caja, but stopped short of the giant rescue deemed necessary by some experts to contain the country’s festering crises. Today the Spanish Debt Agency is to sell €2-3B in a 3-month and 6-month bills. No major data.

General:

• Australian Q4 CPI numbers reflected disappointing PPI data overnight, falling to its lowest q/q level; since Q1 of 2009, taking pressure of the RBA to raise interest rates, which may lead to a weaker Austra¬lian dollar.

• Bank of Japan left5 its target range of 0.0—0.1% unchanged as expected.

For more information or to request a call back click here