Today's Interbank rates -
POUNDS TO US DOLLARS 1.6239
POUNDS TO EUROS 1.1853
POUNDS TO AUSTRALIAN DOLLARS 1.6196
EUROS TO US DOLLARS 1.3700
EUROS TO POUNDS 0.8436
EUROS TO AUSTRALIAN DOLLARS 1.3664
POUND HEADLINES:
- The comments from Posen last night were predictably dovish, but the focus today will be on the BoE minutes and whether there were any more votes for a rate hike in February, as has been widely rumoured in the market.
- Yesterday's positive UK public sector finance data was all but a temporary distraction ahead of the key UK event this week - February's MPC minutes. Although following the release of the Quarterly Inflation report, the BoE Governor appeared to go out of his way to play down market expectations that the MPC is getting ready to raise interest rates, the consensus is for another MPC member to have joined the tightening camp, leaving the voting split at 6-3
- Some economists expect the first BoE rate rise in Q4 this year. Currently this is considerably less aggressive than forecast by the markets. According to the Sonia Curve markets continue to price in a rate hike in May. However, sentiment could turn swiftly with the second estimate of Q4 GDP, released on Thursday, also likely to be watched closely by markets.
- The Euro was one of the strongest performers yesterday, helped partly by the less extended positioning relative to many other currencies, but mostly by the comments from Mersch and Wellink indicating the risk of higher rates and/or removal of special liquidity measures from the ECB.
- German consumer confidence is rising as workers expect wages to increase in 2011, according to a survey by market research group GfK. The data came after a survey on Monday showed an increase in business confidence.
- Despite some positive UK borrowing figures the single currency was on top again yesterday amid heightened expectations of an EU rate rise. However, sterling soon turned lower following hawkish comments from European Central Bank policymaker Mersch.
- The USD finished net stronger on the day in Europe yesterday, with weakening equities late in the day restoring a bid after a modest rally in the European morning, but has fallen back again in Asia overnight.
- Following a strong lift in US existing home sales in December we look for a modest 0.6% fall in January. While an improving US economic outlook may entice some households back into the market, the expiration of the home buyer's tax credit stimulus measures is expected to weigh on the short-term outlook for sales.
- The crisis in Libya was very much in focus yesterday with sterling losing ground to a broadly stronger US dollar. Sterling's losses were exaggerated as the market has been positioning for a UK rate rise in the coming months, which has been the primary factor underlying recent sterling strength.
Kris Charalambides
FX Brokerwww.imsfx.co.uk
Tel: 0207 183 2790
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