Today's Interbank rates -
POUNDS TO US DOLLARS 1.6051
POUNDS TO EUROS 1.1773
POUNDS TO AUSTRALIAN DOLLARS 1.5979
EUROS TO US DOLLARS 1.3633
EUROS TO POUNDS 0.8493
EUROS TO AUSTRALIAN DOLLARS 1.3572
POUND HEADLINES:
- The MPC announces its latest monetary policy decision at noon. It is widely expected that interest rates will remain at 0.5%, but two members voting for a rate hike last month with some others describing the decision as "finely balanced" adds some spice. Markets are pricing a small chance of a rise. An 'on hold' decision would likely see no accompanying statement and attention would shift to next week's Inflation Report
- Although the inflation projections here are likely to be higher in the short-term, the profile should still see inflation falling below target from next year as temporary price effects fall out.
- Ahead of today's decision we see December's industrial output. Official estimates for Q4 implied a rise in manufacturing output in December, which underpin the consensus call for a gain of 0.4%.
- The Euro showed general strength yesterday, though without any obvious reason. If anything this appears to be a continuation of the squaring of short EUR positions that we have seen in recent weeks, though focusing more on the crosses than the USD. This doesn't appear to have been triggered by any particularly positive news from the EU periphery - if anything the opposite is true - but for now the market focus is elsewhere, and as long as the focus is on risks of higher rates and inflation, positions based on these risks are likely to be unwound.
- Italian Industrial Production for December month-on-month comes in at 0.3% beating expectations of 0.2%. The year-on-year figure is 5.4% beating expectations of 4.5%.
- The pound dropped half a cent yesterday against a broadly firmer euro although the price is recovering this morning. This followed from UK trade deficit figures which did not do the pound any favours.
- Bernanke's comments yesterday produced little net reaction in the USD, though the main thrust of his statement that high unemployment and low inflation still justified very easy Fed policy was initially seen as USD bearish. He provided no real justification for the statement that the USD looked "a little more attractive", but may have been referring to the recent modest movement of yield spreads in the USD's favour.
- Sterling tracked a rise in the euro/US dollar pair, but gains were limited as traders noted that the market may have overestimated the chance of UK interest rate rise this month, heightening the downside risks to the pound.
- In the US today later this afternoon we have Initial Jobless Claims, Wholesale Inventories along with International Trade Figures tomorrow.
Kris Charalambides
FX Brokerwww.imsfx.co.uk
Tel: 0207 183 2790
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