United States Dollar: GBP/USD started the week moving along a fairly tight range between 1.5522/67 and found some support early on yesterday in the latest report from the Confederation of British Industry which showed that business volumes are up, though employment numbers have been reduced. During the European session GBP/USD fell back below the 1.5500 handle, to a low of 1.5474, in the wake of worse than expected UK Halifax House Price Index data, coming in at -1.3% MoM in December, versus the median forecast of -0.4%. Talk of earlier than expected interest rate hikes from the Bank of England to counter persistently higher levels inflation was still supportive of the pound, and the rebounding EUR/USD ensured that GBP/USD was stable during North American trade, reaching a high of 1.5603. GBP/USD opens this morning at 1.5570.
– We expect a range today in the GBP/USD rate of 1.5480 to 1.5650
Euro: The euro started the week as it ended the last, with sovereign debt concerns driving it lower against the dollar. Speculation started to mount early yesterday that Portugal was facing pressure from within the EU to accept financial assistance in a bid to stave off contagion to Belgium and Spain. An article in the German press, from FAZ, highlighted the increasing risk premium that investors are demanding to hold Portuguese debt and commented that demand from China for Portuguese bonds may not be enough to calm the markets. EUR/USD fell to a low of 1.2860 during yesterday’s Asian session, however the Coming of Age Day public holiday meant Tokyo traders weren”t at their desks and subsequently further downward pressure was lacking. The session high was found at 1.2930 after Dow Jones reported that a PBOC official had recommended further diversification away from USD in FX reserves. The European session saw European 10 year peripheral bond yield spreads widening from the off, after the German Newspaper Der Spiegel covered the Portugal aid story, though the German Finance Ministry (and later French officials) soon refuted any claims that Portugal was being forced into a corner over the matter. This denial as well as the steadying of bond yields after the ECB were seen aggressively buying Portguese bonds helped EUR/USD move higher before running into some resistance in the 1.2930/50 region. With Eurozone debt fears being somewhat calmed the North American session ended with a rebound in EUR/USD, with the pair testing resistance in the 1.2965 area. The UK Halifax House Price Index coming in weaker than anticipated along with some hedge fund profit taking on their short euro positions from last week saw the pound initially slip up against the euro during the European session, falling below the 1.2000 level after reaching a four month high of 1.2070 shortly before. Sterling would have also found support from news that U.K. and Chinese companies have signed up for $4 bln worth of deals in the energy and automotive sectors. GBP/EUR opens this morning at 1.2032.
– We expect a range today in the GBP/EUR rate of 1.1960 to 1.2100
Aussie and Kiwi Dollars: AUD/USD started yesterday tracing EUR/USD lower and moved between a range of 0.9927/82 during yesterdays Asian session. We saw Australian Retail Sales come in at +0.3% as expected, but the AiG Performance of Construction Index rose to 43.8, showing the house-building sector shrank for the seventh consecutive period in December. The AUD managed to shrug off poor Chinese Trade Balance data, which narrowed to $13.1 bln in December, the smallest in 8 months. Data also showed that China’s copper imports fell 2% in December. Though flood waters are receding in certain areas, the disruption to agriculture and mining industries is likely to continue for weeks and this is still at the forefront on investor minds given that 50% of the mining industry and 25% of Australian agriculture exports originate in the region affected by the flooding. We also saw New Zealand’s Trade Balance deficit narrow to a shortfall of NZ $186, as demand from China increased prices of dairy and lumber exports. AUD/USD continued to trade heavily throughout the European session, dipping to its lowest levels since mid December before recovering to around 0.9970 in North America, with a recovery in equities, commodities and a calming of Eurozone debt fears helping support the AUD on the day. Yesterday was another positive day for GBP/AUD, reaching a high of 1.5716 before falling back down towards 1.5650 in consolidation of its recent gains. GBP/NZD managed to break the 2.0500 level, reaching 2.0501. GBP/AUD and GBP/NZD open this morning at 1.5801 and 2.0502 respectively.
– We expect a range today in the GBP/AUD rate of 1.5680 to 1.5850
– We expect a range today in the GBP/NZD rate of 2.0420 to 2.0560