United States Dollar: Sterling was able to advance to a one month high against the dollar on Friday, amid continued speculation that the Bank of England could hike its benchmark interest rate in the coming months due to rising inflationary pressures. As London opened for business cable made an early move to 1.5867 but it was knocked back to 1.5820 as a UK clearing bank executed a large GBP sell order and further interbank cable selling stalled any move higher. The release of stronger than expected UK input producer price data would have lent further support to the earlier-than-expected rate hike view and allowed GBP/USD to remain buoyed above the 1.5800 level. A monthly high of 1.5889 was reached during North American trading as the greenback came under pressure following Friday’s disappointing data out of the U.S, showing that U.S. consumer confidence fell unexpectedly in January, while retail sales rose less than analysts forecast in December. Friday’s performance capped off a strong week for GBP/USD, and in the absence of little fundamental data to provide sterling with strength, one can reasonably conclude that the easing of Euro zone debt jitters, due to the U.K.’s exposure through Ireland, certainly helped. GBP/USD opens this morning at 1.5834.
– We expect a range today in the GBP/USD rate of 1.5750 to 1.5960
Euro: The euro ended the week up against all its major counterparts, including 3.7% up against the greenback, its biggest weekly advance since May 2009, and 1.7% up against sterling, as sentiment towards the 17-nation currency shifted after a week that saw successful debt auctions in Italy, Spain, and Portugal, and more hawkish than expected inflation comments from ECB President Trichet. EUR/USD had an extremely choppy Friday European session, having started at 1.3343 the pair moved all the way up to 1.3456. Talk then surfaced that Morgan Stanley had put out a euro sell recommendation, with a target of 1.2700, and the euro sell off took hold, bolstered by news that Spanish banks had borrowed more from the ECB in December than they had in November; less hawkish comments on Euro zone inflation from ECB member Weber; and China hiking reserve requirements by another 50bps, saw a move back down to 1.3345. The North American session saw EUR/USD move between 1.3314/1.3404, with the main movements higher for the pair occurring in the wake of the disappointing U.S. data. EUR/USD ended the week at 1.3360 as Fitch downgraded Greek debt to BB+ (junk) and a U.S. consulting firm’s report indicated that the EFSF may only be increased by an additional 60 billion euro. GBP/EUR ended the European session almost unchanged from where it started at 1.1869, but moved lower as EUR/USD made a break upwards, touching as low as 1.1767 as a UK clearing bank executed a large sell order in the pair. Once the order had been completed the pair moved back up, reaching a high for the day of 1.1919, before finishing the week at 1.1853 after more euro buying at the end of the session. GBP/EUR starts the week at 1.1912.
– We expect a range today in the GBP/EUR rate of 1.1840 to 1.1980
Aussie and Kiwi Dollars: Concerns regarding the economic after effects of the flooding in Australia continued to weigh on the AUD throughout the week as it extended losses against the USD and GBP on Friday. During the European session AUD/USD got sold off after The People’s Bank of China raised its reserve ratio for commercial banks by 50bp in an effort to contain inflation, and the pair continued to drift lower in the North American session, finishing the week at 0.9887. Sterling continued to fare well against the commodity currencies with GBP/AUD continuing to track upwards, ending Friday at 1.6051, up 2.7% for the week and GBP/NZD finished up 1.2%, at 2.0712. With little in the way of economic data fuelling the move higher for sterling, a combination of improved sentiment regarding the Euro zone and continuing worries over the aftermath of the flooding in Australia have surely helped its cause. GBP/AUD and GBP/NZD open the week at 1.6038 and 2.0625 respectively.
– We expect a range today in the GBP/AUD rate of 1.5900 to 1.6100
– We expect a range today in the GBP/NZD rate of 2.0560 to 2.0720