Inflation expected to fall in the coming months

Inflation expected to fall in the coming months

Good morning and welcome to today’s foreign exchange market commentary on Tuesday the 20th of March 2012


Sterling strengthened against the euro yesterday hitting a one month high of 1.2086. A more positive tone to the Bank of England minutes and less surprises expected in the budget has supported sterling’s recent rally.

The pound continued to perform well against the US dollar moving on from Friday’s high of 1.5880. GBPUSD opened the week trading at 1.5843 and closed yesterday’s session at 1.5896 after a high of 1.5903.

Yesterday’s UK House Price was up 1.6% month on month against a previous reading of 4.1% and 2.2% year on year against previous reading of 1.4%, showing a positive change from last year.

Chancellor of the Exchequer George Osborne will today launch a new stimulus plan that will channel billions of pounds to small businesses via discounted loans from UK banks.

This morning, data showed UK Inflation dropped further in February, CPI fell to 3.4% from 3.6% last month which should help struggling British households. Inflation is expected to continue to fall in the coming months, having peaked at 5.2% in September.


Fed Chairman Bernanke will deliver a four hour long lecture on the history of the Fed as part of what public relations specialist Richard Dukas called a “P.R. offensive” to buff the central bank’s tarnished image.

Fellow Fed member Dudley said yesterday he was viewing the accelerating US recovery cautiously, noting the outlook for monetary policy depends on what happens with the data now.
In the US traditional data seems to be making more of an impact on the price of USD as the markets see USD moving away from being a risk based currency and back towards a more traditional stance based around data.

EURUSD traded higher yesterday breaking through the significant 1.3250 level. This will be driven by US data for the next day or so as the next key Eurozone release is flash PMI’s on Thursday.
The euro managed an advance against nearly all of its counterparts as markets found encouragement from the completion of the Greek default swap.

Australia’s dollar dropped for the first time in four days on speculation China’s economic growth will slow, damping demand for the South Pacific nation’s exports.

New Zealand’s interest rate is at 2.50% and this is expected to be frozen until at least December. However, Governor Alan Bollard has indicated that cutting the official cash rate remains an option
if the New Zealand dollar continues to remain strong.

The Scandinavians made gains vs USD as it continued to struggle yesterday afternoon. NOK and SEK have been trading closely together, and NOKSEK has remained relatively unchanged since the Norges Bank surprised the market by announcing a 25bp cut last week.

Liquidity in currency markets will be thin today due to a public holiday in Japan.


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