Hope springs eternal

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From the ashes, the euro has managed to hold onto some support and not completely fall apart. The day started with Asian investors marking down risky assets as impatience overtook hope surrounding the prospects of a deal being done by the Greeks and the ECB. By the end of the session some of that hope had returned although most of the newfound optimism must be credited to another batch of data from the US.

The Federal Reserve had noted in its latest round of minutes that the jobs market posed the most problems to the US recovery, however if the trend continues in the same vein as yesterday’s data, Ben Bernanke and the rest of the FOMC will be able to breathe a little easier. Initial Jobless Claims, a measure of new applicants for job benefits, fell unexpectedly to a 4yr low of 348k. This carries on a strong trend from the end part of 2011 that we hope will continue through 2012. It would certainly allow the Fed to keep monetary policy in a supportive stance if jobs start to improve whilst inflation remains under control.

EURUSD managed to bounce back from the day’s lows in the hours after the announcement[,] while GBPUSD went on quite a tear, pulling back into the 1.58s having started the day around 1.5660. The Asian session has quietened things down however, and risky assets look like they will need further impetus from Greece to push things forward. It looks like the uncertainty surrounding the ECB’s holdings of Greek debt has finally been solved and they will not be taking losses, much to the annoyance of those private sector investors who will be losing 70% of their value.

Sounds from Europe overnight have been supportive, hence no real sell-off in risk. While a short-term bridging loan to tide over Greece until the full bailout could be paid over post-election has been rejected, the mood is that the EUR130bn of aid will be voted through on Monday. How many times have we heard that before?

The UK’s collected High St are brought into the spotlight this morning with the publication of January’s retail sales numbers. The expectation is that we will see a fall of 0.3% from the surprise 0.6% increase in December. It seems obvious following the level of discounting and price cutting that retailers felt it necessary to enforce prior to Christmas. We think that the figure will surprise to the high side and only dip by 0.2%. While this will be important from a UK output point of view there is a feeling that this will not alter the pound too much; as we have seen in the past few weeks, it is not news from the UK that moves the pound but instead news from the continent. That being said, a good figure is not going to hurt, just don’t expect a rocket ship.

US inflation data this afternoon is expected to show further moderation with the figure dipping below 3.0% for the first time since April of last year (expectations are for a number of 2.8%). As we have stated above, this, alongside an improvement in the US jobs market, will be music to the Fed’s ears and prompt further expectations of looser monetary policy. The number is due at 13.30.

Indicative Rates Sell Buy
GBPEUR 1.2017 1.2044
GBPUSD 1.5779 1.5804
EURUSD 1.3115 1.3138
GBPJPY 124.74 125.01
GBPAUD 1.4670 1.4697
GBPNZD 1.8887 1.8917
GBPCAD 1.5724 1.5754
NZDUSD 0.8347 0.8365
GBPZAR 12.25 12.30
USDZAR 7.7558 7.7843
GBPPLN 5.0279 5.0364
EURJPY 103.69 104.85

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