Yesterday we saw the US Dollar strengthen substantially especially against Sterling with Cable moving down over 150 points and EUR / USD down around 80 points. This move came as somewhat of a surprise as yesterday was fairly light in terms of data and while we expect the Euro to weaken, to see Sterling move down to this extent was concerning.
The move may have been pricing in good news out of the US with the FED’s beige book report released yesterday at 19.00 confirming that the US economy is picking up in all sectors bar housing, with strong retail sales figures towards the end of the year. Although it is still early days the news out the US continues to look toward a positive future for the worlds biggest economy. Angela Merkel met Italian Prime Minister Mario Monti yesterday to continue her week of talks with leading EU figures and the message was again about promoting growth in the Eurozone. She praised Mr Monti’s swift action when enacting reforms and debt cutting measures but Italy still has a lot to do with looming debt repayments on the horizon.
Today is very busy with a lot of key data coming out, the most important being the two interest rate decisions. At 12.00 the Bank of England release their first interest rate decision of the year with the expectation that they will leave things on hold. It will be interesting to see if they look to add to their asset purchasing or if they leave things as they are for the time being.
Continuing on from the BoE at 12.45 will be the ECB interest rate decision, followed by ECB president Mario Draghi’s speech at 13.30. Having cut interest rates twice in the last two months it is very unlikely that there will be a further cut. Instead the market will look to his speech to see if there are any plans to increase lending to troubled countries. Other data out today includes manufacturing figures out of the UK at 09.30 which are expected to be slightly down on last year. Lastly further data comes out of the US at 13.30 with jobless claims and retail sales figures expected to be good which may strengthen the Dollar further.
Expect the market to be very volatile today especially around 13.30 during Draghi’s speech and US data. We may see GBP / EUR test the 1.20 level over the course of the day given its sharp move down but we wouldn’t expect it to last too long at those levels. If you are selling Dollars the levels are very good at the moment especially against Sterling and it may be a wise move to take advantage now before the end of the week.
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