Sterling The main talking point for the UK yesterday was the pound’s dramatic depreciation. All UK releases missed estimates triggering an enormous sell-off in sterling. It is common practice for weak data to reduce the value of a nation’s respective currency; however, this disappointment was particularly potent. This is due to the Governor of the Bank of England’s open call for an aggressive shift in the UK’s current QE programme. His predecessor, Mervyn King, was unable to convince a sufficient majority of his MPC peers that a rise in the current £375Bn of asset purchases was necessary. The weak data undermines our government’s attempts to convince Britain that recovery is at hand and may play in Governor Carney’s favour; as such, speculators sold-off their sterling holdings which weakened the pound. Today there are no UK releases so sterling’s movements will likely be predicated on its counterparts’ performance. Euro The euro was hit with a number of factors yesterday that saw the currency slide during the latter half of the UK trading session. Italy had their credit rating downgraded to BBB from BBB+ by S&P; the catalyst, however, was comments from ECB policymaker Joerg Asmussen. Asmussen suggested that Europe ought to use a Cypriot-style model of ‘bailing in’ any future bank failures by forcing savers to share the cost of any bailout. Asmussen echoed the words of his countryman Jens Weidmann who was the first ECB member to suggest that the Cypriot-model could be a future blueprint. Comments like these only divide the Currency Bloc further by demonstrating the dichotomy between the stronger member states such as Germany and Finland compared with the likes of Greece. Today’s most significant releases will be the German Consumer Price Index and their Harmonised Index of Consumer Prices. US Dollar Despite the lack of US data yesterday the Greenback managed to rally against its major counterparts. This led the Dollar Index, which measures USD against a basket of its counterparts, to break above the 84.7 level. The move higher is likely due to poorer risk-associated data, like that from the UK and the Currency-Bloc, and due to traders taking long dollar positions ahead of the FOMC minutes due out today. The FOMC minutes are by far the most significant release from the States today and are likely to shed light on how much support there is to begin tapering QE by the end of this year.
Posted on: Wed, 10 Jul 2013 09:25:27 +0000
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