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Sterling shines ahead of inflation numbers |
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Sunday, 14 January 2007 |
- Sterling continues to shine ahead of inflation numbers
- Volatility guaranteed in heavy data week
Is it me or does it seem churlish for Gordon Brown to take part in the
creation of separate parliaments for Scotland and Wales and many
abortive attempts at a Northern Irish assembly and then to warn that
the union of Great Britain is under threat. It’s a bit like an arsonist
issuing fire warnings. Still at least when he takes his place as Prime
Minister, we are told to expect a "rocket boost", are we talking about
the same dark and moody Brown? Sterling got a rocket boost from the
surprise Bank of England interest rate hike last Thursday and it
managed to see out the weekend with the fires still burning. This is
also a big week for UK data; producer prices, consumer prices, retail
sales, unemployment; they are all expected and the forecasts are strong
across the board. No wonder traders were happy to hold on to their GBP
buying trades for a few days more. There is also a whole heap of other
data to consider as well from the US, Eurozone and elsewhere. Most of
the salient points are covered below but the overnight entries from
Japan were interesting as well. Japanese machinery orders spiked higher
ahead of this week’s Bank of Japan interest rate decision. Traders took
this as further evidence that the BOJ will hike their base rate and
that might weaken the high yielding currencies like the Aussie and Kiwi
Dollars as the amount of funds borrowed in Japan and invested in these
currencies should fall. However, with US traders on the Martin Luther
King Day break, today’s market will be as unpredictable as a Liverpool
score line. Have a great week and in the words of Stevie Wonder, “Happy
Birthday to ya” Martin.
The US Dollar, despite it’s weakness against the Pound, is gaining
against virtually everything out there. This is the second week that we
have witnessed a generally stronger USD and we have to thank improving
US data for the gains. US Retail Sales were up 0.9% and the trade
deficit narrowed for the 2nd month in a row. Not only that but US
unemployment eased and oil, a major import for the US is sliding
although your pump prices have probably not reflected that yet (how
odd; I wonder if that has anything to do with the record profits that
oil companies report year in year out). Wednesday’s TICS data which
measure the net inflow of funds into the US treasury market will be
closely followed to assess whether the inward flows cover the gap
between imports and exports. There is also a plethora of other US data
to get steamed about with producer prices, consumer prices, industrial
production, housing data and a heap of indices of varying importance.
It’s gonna be busy and that is good news for buyers and sellers. Just
let us know what you want to achieve and we’ll make sure you get the
chance to do so.
In stark contrast to the surprise UK interest rate hike, the European
Central Bank press conference was notably bland. The head of the ECB,
Jean Claude Trichet went from a stance of threatening further interest
rate hikes to making no such claims in a matter of days. The word that
everyone watches for from the ECB is ‘vigilance’ which denotes a
slightly hawkish tone with ‘strong vigilance’ being reserved for the
weeks when interest rates are expected to be hiked upward. This magic
word was notably absent from the press conference which followed the
‘on hold’ decision last Thursday. No wonder the Euro lost ground
against the Pound but it also lost its way against the US Dollar,
falling below $1.30 and looking vulnerable to further declines. You can
begin to understand Monsieur Trichet’s reticence when you consider a
fall in German retail sales and the ongoing concerns over what the
strong Euro is doing to exporters. He will no doubt be following this
week’s Eurozone industrial production and inflation with keen interest
but that is all he will have to go on as the bulk of the data comes
from the other side of the Channel and the Atlantic. It would look like
we ought to see further weakness in the Euro this week but there are
significant levels of resistance to such a move just above the market.
So the upside for GBPEUR may well be quite limited from here whilst the
market is very likely to want to test the previous resistance level at
€1.4920 at some stage. So please be cautious if you need to buy Euros
and make sure you don’t miss out.
If you lead a country like Britain, a strong country, a country which
has taken a lead in world affairs in good times and in bad, a country
that is always reliable, then you have to have a touch of iron about
you.
Margaret Thatcher
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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