Data/Event Risks
- USD: Â A greater sensitivity to data in the wake of the FOMC minutes yesterday, which raised the possibility of slowing the pace of asset purchases on the back of emerging inflation fears. Stronger CPI data would provide further support for a stronger dollar.
- GBP: The borrowing numbers are never usually a big deal for the currency, but some focus on the CBI survey given the potential for more quantitative easing that emerged from yesterday’s Bank of England minutes. Sterling is looking very weak right now from a technical basis.
Idea of the Day
One of the themes of yesterday was that policy-makers appear to be growing more indecisive when it comes to what to do with monetary policy. We saw this in the minutes to the last Bank of England meeting, where some were looking to expand quantitative easing and a range of other options were discussed. The US Fed also showed a growing split of opinions; with a numbers of members seeing the need for the early slowing of stimulus (they have commitment to keep things ‘accommodative’ until unemployment is down to 6.5%). Why this is interesting is that it comes at a time when monetary policy is already having less impact on currencies, as they steer to become more sensitive to economic data. It also shows that we’re getting greater divergences of policy risks between the major currencies, which creates a backdrop for FX volatility.
Latest FX News
- USD: Â Jumping around 0.3% higher on the back of the Fed minutes, but up 0.75% on the day on the DXY index, strongest 1 day gain for 10 months.
- JPY:Â Standing up to the stronger dollar with USDJPY pushing modestly lower during the Asia session.
- GBP: Nothing short of a blood-bath in sterling yesterday, cable smashing through the 2012 low of 1.5269 on a closing basis. There is a growing negative chorus surrounding the central bank, given the fact that they are looking to ease further and expect inflation to remain above target for longer. As we said at the time, a negative combination of factors for any currency.
Further reading:Â Forex Analysis: GBP/USD Continues Bearish Trend Towards 1.5000
