- EU and UK interest rate decisions today
- Improved Aussie employment helps Aussie Dollar
As Britain gets battered by wind and rain, Home Office Ministers
backtrack like billy-oh and tens of thousands of US troops head off to
the hell of Iraq, we really ought to be boarded up at home in fear of
all the criminals roaming our streets at will. The problem is that
being boarded up at home is probably not ‘green’ enough for the news
channels that seem to be on a crusade to bully us all into greening it
up.
The markets were more interested in the widening UK trade gap as we
sucked in more imports and the narrowing US trade gap as they seemed to
export more goods to the UK. Today will be busy on the data front with
interest rates on hold in the UK and EU but the distinct chance of a
change of tone at the ECB press conference to accommodate an earlier
interest rate hike should allow the GBPEUR exchange rate to fall.
However, UK industrial production is expected to be rather better than
last month so the decline might be a little more muted than it might
have been. We also get the US initial jobless claims and a number of
speeches from Federal Reserve members which will be analysed until they
are worn out. And once that is all out of the way, Friday’s US retail
sales data loom into view.
We have started the New Year with a wave of volatility and a hefty
dose of GBP strength so don’t be at all surprised when traders decide
to take the profit they have amassed and allow this movement to unwind.
Australia announced its unemployment levels overnight and the figures
were terrific. Australia created 44,000 new jobs in December, keeping
the unemployment rate at a 30 year low and thereby adding to the upward
pressure on wages. The jobs growth was three times the market forecast
and that must worry the Reserve Bank of Australia who were perhaps
hoping for a slight decline in the pace of employment growth because
they are almost certainly going to have to raise their base interest
rate again in the near future, adding to the strength of the Aussie
Dollar. A 25 basis point rise in Aussie base rates is seen as a 50-50
chance before the end of March according to bond traders and, the AUD
pushed above 78 US cents as soon as the numbers were released in light
of this expectation. GBPAUD is a cent lower this morning and we would
envisage further declines in the coming days as long as the Bank of
England leaves its interest rates on hold at noon today - and that is
almost a foregone conclusion.
Sterling is so finely balanced against the Euro at the moment that even
small movements in this exchange rate create little gasps and ooohs and
aaahs amongst traders. However, we may be nearing the end of this
narrow range because there is a slight divergence of opinion over the
likely path of EU and UK interest rates in the coming months. The ECB
is almost certain to signal that a February interest rate hike is
coming when they meet today but the Bank of England is less obvious and
we won’t even see their musing over UK interest rates until they
release the minutes from today’s meeting in a fortnight’s time. Add to
this the charting signals which all point to Sterling being overbought
and testing the top of its range and you have to say the odds on a fall
in GBPEUR are far greater than the chances of further rises. Euro
buyers are understandably making hay at the moment but Euro sellers,
your day may finally be nigh.
When a man throws an empty cigarette package from an automobile, he is
liable to a fine of $50. When a man throws a billboard across a view,
he is richly rewarded.
Pat Brown, quoted in David Ogilvy, Ogilvy on Advertising, 1985
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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