USD remains safe haven of choice amidst European uncertainty
United States Dollar: Sterling tumbled to a 1-1/2 month low of 1.5788 against the USD on Thursday as investors continued to sell the UK currency on fears that more quantitative easing might be needed to prop up the British economy after the Bank of England cut its 2012 growth forecasts in their quarterly Inflation Report released on Wednesday. Further downward pressure was exerted on cable as investors continued to pile into the USD in a bid to shield themselves from the ongoing turmoil in Europe and undoubtedly those dollars were used to buy US Treasuries as the 10-year yield fell below 1.7% to a near all-time low. Good news was hard to come by on the day, as price action in the USD and JPY would attest to, with the market remaining transfixed on headlines out of Europe. Economic data from the US came in on the weaker side on Thursday, with the Philadelphia Fed Manufacturing Index, a measure of the relative business conditions in Philadelphia area, coming in at -5.8 versus expectations of 10. Given the underlying safe haven bid that the USD found on Thursday the weaker economic data didn’t hurt the greenback too much, although markets discomfort with the weaker data was made clear via a freefalling USD/JPY pair. It is hard to argue with price action in GBP/USD at the moment as the pair continues to trade on risk sentiment and given how long the market has been of GBP recently it seems fair to assume that further extended losses in cable are well within the markets reach. GBP/USD opens this morning at 1.5796.
We expect a range today in the GBP/USD rate of 1.5740 to 1.5870
Euro: A weak 4 and 5 year bond auction meant that the Spanish government’s ability to fund itself was once again called into question on Thursday, pushing the nation’s 10-year borrowing costs to 6.35% and the cost of insuring against a Spanish government default rose to an all-time high. Mounting concerns surrounding Spain’s banking sector pushed the IBEX to its lowest level in 9-years as shares in the recently nationalised Bankia plunged. Indeed rumours had swirled the market all day surrounding a possible downgrade of Spanish banks and sure enough at the close of US trading Moody’s downgraded 16 of the nation’s banks, including Santander UK, by 1-2 notches with a negative outlook. All of this meant that the single currency slid sharply against the USD on Thursday with EUR/USD trading to 1.2666, the pair’s lowest level since January 17. GBP/EUR continued to pare back its recent gains on Thursday, falling to a low of 1.2426 from a starting level close to 1.2500 as sterling lost some of its shine, weighed down by the more dovish than expected Bank of England Inflation Report released earlier this week. Another factor behind the losses in GBP/EUR might well have been the impact that a Greek euro exit might have on the UK, especially in light of Mervyn King’s comments on Wednesday and the downgrade of Santander UK. The economic calendar is very light across the board today and so it is likely that investor focus will shift to this weekend’s G8 summit where it is inevitable that discussions will focus on European woes. GBP/EUR opens this morning at 1.2442.
We expect a range today in the GBP/EUR rate of 1.2400 to 1.2500
Aussie and Kiwi Dollars: The AUD and NZD continued to suffer on Thursday as another broadly “risk off” day prevailed and investors continued to shun the risk trade in favour of safe haven assets. AUD/USD and NZD/USD declined to fresh multi-month lows at 0.9894 and 0.7916 respectively as equities were hammered lower. The sterling/antipodean crosses were unable to capitalise on the weakness of the AUD and NZD on the day as GBP pulled back across the board on fears that the Bank of England may not be as close to tightening monetary policy as originally thought. GBP/AUD fell to a low of 1.5887 from a start close to 1.6000 and GBP/NZD fell to 2.0591. Both pairs have bounced higher in overnight trading however and GBP/AUD and GBP/NZD open this morning at 1.6037 and 2.0840 respectively.
We expect a range today in the GBP/AUD rate of 1.5940 to 1.6120
We expect a range today in the GBP/NZD rate of 2.0750 to 2.0920
AUD: No data due
EUR: Italian Industrial Orders, German PPI
GBP: No data due
NZD: No data due
USD: No data due
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