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Sterling balanced ahead of interest rate hike |
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Sunday, 04 February 2007 |
- Sterling finely balanced ahead of this Thursday’s Bank of England decision
- US Dollar weaker after poor US employment report
What a great weekend to be an English rugby fan; all the experience was
back and Jonny was kicking like a demigod and scoring iffy tries. It
bodes well for the rest of the 6 Nations campaign and might just give
us a platform for the World Cup. However, the game of the weekend was
between Ireland and Wales and showed that England will have to improve
to be considered contenders. And we start the week with the Pound under
the cosh after a poor purchasing mangers report added to the
expectation that we will see no change from the Bank of England when UK
interest rates are decided at Thursday’s Monetary Policy Committee
meeting and the Euro looking rather attractive as a number of
investment banks back the single currency
against the Japanese Yen as a safe bet. The Yen itself strengthened
after G7 Finance Ministers claimed it was too weak but what would they
know. The rest of the week will provide all manner of reasons to change
our minds with interest rate decisions from the UK, EU and Australia as
well as a flurry of UK manufacturing, retail and employment numbers to
digest. And if that isn’t enough to satiate your cravings, we also have
US productivity and inventories and a blizzard of speeches from Federal
Reserve members. Not enough? Well how about EU retail sales and
business sentiment indices as well as German industrial production and
trade balance data. I would think all of that would be plenty for
anyone; it’ll certainly keep us on our toes but it’s being so alert
that keeps us young. Young enough to remember just how Shakespeare,
taught badly, can switch you off literature and yet we are assured that
The Bard will be retained in the new revised Curriculum. Please teach
the plays in drama rather than English lessons though.
This week will either reinforce the view that Eurozone interest rates
are going to rise again or pooh pooh it entirely. With all the data
mentioned in the main section emanating from the Eurozone in the coming
days, there will be plenty of traders happy to buy the Euro if the
interest rate hike story is winning and plenty happy to sell out of the
Euro if the European Central Bank looks like holding off from raising
Eurozone interest rates for an extended period. The market analysts
and forecasters are fairly convinced that the data from the Eurozone
overall will be rather encouraging but the German data may generally
disappoint. If they are right, then the GBPEUR exchange rate will
probably end the week slightly lower but the volatility throughout the
week ought to offer decent opportunities for both buyers and sellers or
Euros. Obviously, any hint from the ECB on Thursday that interest rates
will rise in March, as many analysts are already forecasting and as the
bond markets seem to be factoring in, will bring Euro strength but
traders may be wary of overdoing the Euro buying binge until we get the
Bank of England meeting minutes in a fortnight’s time. Grabbing
opportunities as they present themselves is tricky unless you use
automated orders and I would certainly advocate that approach this
week. Call your Halo Financial contact or contact me if you want to
know the best way to do this.
The US Dollar will be very closely watched this week even though there
are not too many US data releases. However, the drop in Friday’s
non-farm payroll data and speeches due tomorrow from the Federal
Reserve Chairman and two other members of the Fed’s interest rate
setting committee, have conspired to strengthen the USD slightly as we
start the week. I have written about the heavy USD buying which takes
place whenever the Pound approaches the top of the 14 year long trading
channel at $1.98 and above but there are significant USD selling levels
around $1.95 and $1.94 as well and these rates are likely to be tested
significantly in the coming days. US Dollar sellers need to look at
these as potentially the best levels we are likely to see for a while
to come. A rebound back to the top end of the range is likely as long
as the Fed is not talking of higher interest rates in its rhetoric.
However, if the market decides to drop GBPSD below $1.94, it could
easily fall sharply to $1.92 or even push on to test the
psychologically significant $1.90. However, unless this happens, the
gentle upward slope of GBPUSD will eventually hit $2.00 but we can only
speculate as to when that may happen.
I have never let my schooling interfere with my education.
Mark Twain
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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