Data/Event Risks
- GBP: Inflation (CPI) data the major event risk today, but also note that some BoE officials are speaking before a parliamentary committee, so that brings some volatility risks as well. Currency vulnerable to higher number vs. 2.7% expectation, as for now BoE’s hands are tied on policy given economic weakness.  See how to trade the CPI release with GBP/USD.
- USD: The data of modest interest for the dollar, especially with investors more sensitive to signs that the Fed may end QE this year, so sales and/or PPI dollar positive, but euro driving direction at the moment.
- EUR: Low risk from data today. Although drifting lower vs. USD through Monday, the sense is that sentiment has shifted and sustained move above 1.34 could trigger more stops.
Idea of the Day
Sterling is a prime example of the way things are changing for currencies. It’s been weaker of late for a number of reasons. The better picture in the Eurozone is one factor, with investors now more comfortable having their cash there, with others repatriating funds. But watch today’s data. Softer inflation would often lead to a weaker currency on the belief that more quantitative easing was on the way, but that dynamic is now a lot weaker, especially for the UK. The hurdle towards more QE looks a decent size and there may be a greater reluctance to change policy ahead of the new governor coming in July. Higher rates are an even larger hurdle so stronger inflation numbers today could well add to the weaker tone to the pound that has been evident in recent days.
Latest FX News
EUR: A more stable tone emerging so far this week, but keep an eye on developments on the Swiss franc and also sterling. There are growing signs that investors are moving funds back into the Eurozone – reverse capital flight for want of a better term. This could continue to provide support in the coming days/weeks.
JPY: USDJPY moved lower towards the 88.50 area on the back of comments from Japan’s economy minister (Amari) warning of the problems of an excessively weaker currency. There was some confusion on the translation of his comments, which were not implying the problems were evident now. He said the yen “is currently automatically correcting to a level in line with… fundamentalsâ€.
USD: Those hoping for more clarity on when quantitative easing might end were left disappointed in the wake of remarks by Fed Chairman Ben Bernanke last night. This comes at a time when members of the FOMC appear more divided on the impact of large scale asset purchases. The dollar was little moved overall.
AUD: The failed attempt to break above 1.06 last week has left the Aussie feeling a little deflated, but crucial to watch the charts in the coming days because move above here could prompt much activity.
GBP: The RICS survey of house prices rose to 2 ½ year high overnight (from -9 to zero). There are many indicators of the housing market, so it never pays to read too much into any one of them, but the trend over the past 6 months in this one is encouraging, at least suggesting the worst is most likely over. GBP steady.
