US Dollar:
The dollar lost some of its gains yesterday after the run to safety of the greenback in the wake of the Japanese crises lost its popularity. This was seen against both the euro and pound as EUR/USD gave up over a cent to trade from the $1.39 handle to over the $1.40 level. In cable we saw a move against the dollar from $1.60 to just touch the $1.61 handle. The main benefactor in the currency market of the run to safety and a global fall in risk appetite was the Japanese yen, as the repatriation of funds back into Japan pushed the yen higher yet again. The dollar fell below the Y81.00 handle, its lowest level since November last year as it hit Y80.58. Looking at the US markets in more focus, there was a bullish feel about the Fed’s chatter about the state of the US economy. Even though the Federal Reverse decided to keep interest rates on hold at 0.25% yesterday, they stressed that the US economy is on ‘firmer footing'. It looks like the events in Japan and geopo¬litical issues really didn't weigh in terms of how they are seeing the evolution of risks in their overall outlook.
Data 13.30: Building Permits 0.58M from 0.56M & PPI m/m 0.7% from 0.8%.
Pound:
Sterling has been under pressure for the last few weeks and events in Japan and Libya have continued to heap pressure on the UK currency as the rush to risk averse currencies continues. In times of unrest and worries in global markets, investors tend to rush to the safe haven currencies such as the yen, dollar and Swiss franc. This has seen cable under pressure, but a bullish view coming from the Fed yesterday saw the dollar give up some of its recent gains to see GBP/USD make back some losses. Cable has now rallied over a cent to push back over the $1.61 handle. Against the euro there has been continued declines as the single currency benefit¬ted from last weekends meeting on the amount of funds European countries can call upon in times of crises. Overnight however saw a sell off for the euro after a downgrade in Portugal’s credit rating which saw GBP/EUR rise back over the 1.15 handle. A report in the Independent has given another possibility to why the pound has dropped some much over the last week or so. The economic consequences of the Japanese disaster maybe be felt especially acutely here in the UK in one specific way. If the way in which investors in gilts and interest rate futures were behaving yesterday is any guide, the earthquake might mean that the Bank of England’s Monetary Policy Committee now waits longer than previously expected to increase the cost of borrowing. A delay in rais¬ing interest rates is seen as a negative for the countries currency and put a delay in the pound improving, for now anyway. Data 10.30: Claimant Count Change 1.2k from 2.4k, Average earnings Index and Unemploy¬ment rate expected unchanged at 7.9%. Speaker: BoE Gov King Speaks this morning.
Euro:
The euro lost some of its steam yesterday after an impressive assault on both the dollar and sterling. A four month high was seen in EUR/GBP as the 0.87 handle was breached and in EUR/USD we saw the $1.40 handle posted. The reason for the single currencies rally to coming to a halt was because international ratings agency Moody’s downgraded Portugal's sovereign debt rating, citing the country’s need to cut debt and its poor growth prospects. Meanwhile Portugal's main opposition party has announced it will oppose the governments austerity plans. The prime minister has warned the country could face a bail-out. Moody’s also gave a negative outlook on the new rating, which means its rating could be downgraded further.
Data 11.00: CPI y/y 2.4% unchanged.
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| GBP/USD | 1.6086 |
| GBP/EUR | 1.1515 |
| EUR/USD | 1.3968 |
| GBP/JPY | 130.03 |
| GBP/AUD | 1.6187 |
| GBP/NZD | 2.1917 |
| GBP/ZAR | 11.2406 |
| GBP/CHF | 1.4774 |
| GBP/CAD | 1.5801 |
| GBP/SGD | 2.0546 |
| GBP/THB | 48.93 |
General:
The price of oil fell below $100/barrel on Tuesday for the first time in two weeks as investors dumped commodities for safer assets amid worries that the widening disaster in Japan could lead to global economic slowdown. This also led to a fall in the value of commodity currencies, namely the South African Rand, Aussie & Kiwi dollars and the looney (Cad dollar).