Yesterday was very flat compared to last week’s excitement with rates trading within quite a narrow range. There was very little data out yesterday which is the likeliest reason why it was so quiet with most market attention being focused on the problems with Facebook’s IPO.
Yesterday was very flat compared to last week’s excitement with rates trading within quite a narrow range. There was very little data out yesterday which is the likeliest reason why it was so quiet with most market attention being focused on the problems with Facebook’s IPO. Today should be more volatile as there is some key data due out of the UK and the U.S. This morning at 9.30 there was key UK inflation data out with CPI and RPI figures released. The results on the whole were on expectation with the important CPI figure coming in slightly above expectation at 2.1% compared to a consensus figure of 2%. Given this we saw very little reaction in the market with Sterling holding firm at its current levels. The Bank of England will be monitoring this data closley as they track inflation and it is these figures that would likely have a bearing on any future interest rate decisions.
Christine Lagarde was speaking in London this morning in her capacity as IMF managing director after their review of the UK economy. She called on the Bank of England to consider cutting interest rates and introduce more quantitative easing to further boost the UK economy. She praised the measures taken after the financial crisis but warned of downside risks which mainly hail from the Eurozone crisis. I would be surprised if we saw any movement in the Bank of England policy until the end of the year as currently they seem content to roll along and keep policy unchanged. Also this morning we have seen Japan downgraded by Fitch from AA to A+ as their national debt rises to 240% of GBP. We should see the Yen weaken off the back of this announcement and we could see Sterling/Yen push towards 1.30. At 15.00 we have consumer confidence out of Europe and housing data of existing home sales figures out of the US. The European data is expected to be worse and we could see Euro/Dollar come down off the back of the figures.
We believe Sterling could have a drift down this week and we could see GBP/ EUR under 1.23 and GBP/USD under 1.57 by the end of the week. If you are selling Sterling it may be wise to lock your rate in now while the levels are still good especially against the Euro. The Dollar seems to be becoming popular again as a safe haven and it is likely that this will continue in the near future especially while there is uncertainty in Europe.
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