Today's Interbank rates -
POUNDS TO US DOLLARS 1.5994
POUNDS TO EUROS 1.1886
POUNDS TO AUSTRALIAN DOLLARS 1.5969
EUROS TO US DOLLARS 1.3455
EUROS TO POUNDS 0.8412
EUROS TO AUSTRALIAN DOLLARS 1.3434
POUND HEADLINES:
- A big week for sterling with the Inflation report on Wednesday having potential to significantly change market expectations on rates. With three rate hikes priced in for the year, it is hard to see how more gets priced in ahead of the QIR, suggesting some downside potential for sterling in the run-up to the Report.
- In addition to the report, the UK's consumer prices, employment and retail sales figures are all due, which should provide a better picture of the country's economic health.
- It is expected that the pound will climb against the euro through the week, particularly as eurozone bond yields start to widen again, but could struggle to push far against the US dollar.
- After a month of broadly improving sentiment, last week saw Eurozone bond markets start to lose their nerve again. Performances were mixed with Spanish spreads over German Bunds rising modestly, but significantly back over 200bps. Irish spreads also rose further as Finance Minister Lenihan delayed bank recapitalisation, reawakening concerns for senior bond holders. Portugal saw the sharpest rise with yields on its ten-year debt appearing to make a decisive break above the psychologically important 7.00% following a poorly received syndication earlier in the week.
- Eurozone finance ministers have an opportunity to repair this damage as they come together for today's Eurozone finance minsters meeting (ahead of the full Ecofin meeting tomorrow). Today's meeting will give ministers Schaeuble and LaGarde the chance to convince their peers of the virtue of common Eurozone economic governance.
- Ahead of the meeting's conclusion today, the Eurozone posts industrial production for December.
- The USD has benefited from a combination of outflows from Asia and other EM, rising yields and heavy short positioning in the last few days, and as long as US yields hold current high levels it is hard to oppose USD gains.
- The US trade deficit ballooned in 2010 by the largest amount seen in a decade. The Trade deficit - the difference between imports and exports - hit $497.8bn lat year, up 32.8% on the year before, the biggest annual percentage gain since 2000.
- The pound slipped back against a broadly stronger US dollar on Friday amid a rise in risk aversion, briefly taking the price below $1.60. In a addition the recent spate of US economic data has been supportive for the greenback.
Kris Charalambides
FX Brokerwww.imsfx.co.uk
Tel: 0207 183 2790
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