US Dollar:
The dollar remains under pressure from its major rivals as US data contributed to unease over the US economic outlook, as the economy continues to disappoint on a short term basis. A continuing stream of weak US data, would fuel concerns that the Fed would have to take some monetary action. If the Fed does signal more easing, a move of the euro toward $1.35 cannot be ruled out, with $1.60 not far off against sterling. To gauge the pace of the US recovery, which could offer clues on whether the Fed will act, investors will be focused on Friday’s nonfarm payrolls report. If corporate are not hiring, it is a vote of no confidence, and will bring the Fed into action and weaken the US dollar. Data 13.15: ADP Nonfarm Employment Change 38k from 13k. 15.00: ISM Non-Manufacturing PMI 53.2 from 53.8.
Pound:
Sterling continued to shine against the greenback yesterday as a falling dollar saw cable target the next signifi-cant level of $1.60. We have seen a slight pullback this morning, with GBP/EUR remaining flat, but cable may regain a bullish bias, with technical's pointing to a mixed performance ahead against the euro. Policymakers at the Bank, who are expected to leave interest rates on hold for a 17th consecutive month tomorrow, are facing their toughest dilemma since talking responsibility for rates 13 years ago. We are going to have subdued growth for five or six quarters but a temporary increase in inflation. The Bank has a 2% target and must write a letter of explanation to the Chancellor if it climbs above 3% or falls below 1%, and has been above target for 41 of the past 50 months. Brian Coulton, head of European sovereign ratings at Fitch, said the markets may lose faith in the Bank if it stays above target too long, which could cause a collapse in sterling and force a rate rise. A mone¬tary policy shock is the biggest risk for a double dip recession. Little sign of sterling weakness appeared yester¬day, as the pound rose 0.57 cents to $1.5954—its ninth consecutive gain, and the longest winning streak in 18 years. Data 09.30: Service PMI 54.5 from 54.4.
Euro:
The euro is continuing to shake off its recent weakness on the back of sovereign debt worries and has now hit a 3 month high against its US counterpart of $1.3261. Germany is showing its resilience as economic data comes in above expectations, with German exports booming again, helped by the recent fall in the value of the single currency. German employment is also doing better, with the unemployment rate at 7.6%, down from 9.1% in January. Germany's unexpectedly strong economy is generally considered good news for the rest of Europe, which depends on German demand for its goods. So the drop in joblessness, which should help increase con¬sumer spending and encourage Germans to take vacations in Spain and Greece, channelling euros to two places that need them.
Data 09.00: Final Services PMI56.0 unchanged. 10.00: Retail Sales m/m 0.0% from 0.1%.
General:
• The yen is gaining against major rivals Wednesday as traders respond to fresh concerns over the US economy’s endurance. A senior FX dealer at Sumitomo Trust & Banking, said that despite the yen’s sharp rise, traders aren’t anticipating the Bank of Japan to intervene to prop up the dollar. He said that another factor “arguing against intervention for now that the recent moves aren’t so much about yen strength as they are about dollar weakness.
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| GBP/USD | 1.5954 |
| GBP/EUR | 1.2084 |
| EUR/USD | 1.3210 |
| GBP/JPY | 136.40 |
| GBP/AUD | 1.7468 |
| GBP/NZD | 2.1777 |
| GBP/ZAR | 11.6660 |
| GBP/CHF | 1.6619 |
| GBP/CAD | 1.6345 |
| GBP/SGD | 2.1568 |
| GBP/THB | 51.84 |
| GBP/HKD | 12.3739 red-down; blue-up (snap shot) |
These rates are for indication purpose
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John Paul Georgiou
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\n john.georgiou@voltrexfx.com