Today's Interbank rates -
POUNDS TO US DOLLARS 1.6171
POUNDS TO EUROS 1.1916
POUNDS TO AUSTRALIAN DOLLARS 1.6138
EUROS TO US DOLLARS 1.3684
EUROS TO POUNDS 0.8391
EUROS TO AUSTRALIAN DOLLARS 1.3543
POUND HEADLINES:
- Focus in the UK turns to the latest public sector finance figures. Due to a rise in VAT receipts and corporate tax revenues, it is expected public sector net borrowing to post a surplus of £1.1bn for January. This should provide a temporary distraction ahead of tomorrow's key MPC minutes, where the markets are braced for another MPC member to have joined the tightening camp.
- We have had Sentance and Weale putting forward the hawkish case in the last couple of days, and we have Posen to put forward the dovish case tonight, but none of this changes anything substantive. The minutes tomorrow are the next major focus, and market gossip is assuming the vote shifted 1-5-3.
- Sterling has found itself in a stronger position against the euro this morning following Weale's comments on Monday saying that a small rate rise could reduce the need for a bigger rise later.
- The German IFO business climate index and the Eurozone manufacturing PMI both topped expectations in February, with the latter hitting a new two-year high on surging exports and rising consumer spending. The recovery in Europe is being led by manufacturing which is, of course, something of a global theme.
- The Euro continues to show tremendous resilience to bad news. Merkel's election defeat in Hamburg and the widening of yield spreads between southern Europe and the core have had little perceptible impact, with the Euro still reasonably firm across the board.
- Of course, the strength of the Euro-zone data is helping, with the PMIs and the IFO data yesterday both indicating that the core continues to boom, and in the service sector as well as in manufacturing. But the upside for the Euro is limited as long as the problems of the periphery are not addressed with a comprehensive package. The effectiveness of this package could be compromised by a more reluctant Germany in the face of the election results, so risks are increasing.
- Although US markets were closed yesterday for the Presidents' Day holiday, there was more than enough to preoccupy markets in Europe. Ongoing tensions in the Middle East and surging gold and oil prices kept investors on the defensive.
- Today we have the US consumer confidence report and house price figures which are expected to be mixed. While US sentiment is predicted to have posted a further improvement, the housing market remains the Achilles heel of the US recovery, with house prices forecast to have dropped again in December.
- The USD is starting to benefit from the increase in tension in the Middle East, and there is potential for substantial USD gains, given the positioning numbers suggest the market is significantly short USD.
Kris Charalambides
FX Brokerwww.imsfx.co.uk
Tel: 0207 183 2790
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