 Suffering sterling
Source: FxPro - 12/5/2012 3:45:00 PM
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Data/Event Risks
• GBP: The chancellor delivers his autumn statement, which used to be rather bland affairs, but are now like mini-budgets, which creates greater risks for FX volatility, depending whether going to be tough (weaker currency), or easy (stronger currency).• EUR: Modest interest with the final services PMI data early on, with Span selling bonds today.• USD: Fiscal cliff sentiment again dominates. Obama kicked the latest proposal from house speaker Boehner into the long grass, but Bloomberg interview gave some hints of scope for compromise.
Idea of the DayA key day for sterling as the chancellor delivers his autumn statement (even though it’s snowing in parts of the UK) and the latest independent forecasts are published. Borrowing has exceeded targets this year as the economy has disappointed, so there appears to be little room for the Chancellor to cut taxes. In essence, this should keep expectations alive for more QE from the Bank of England next year. The link between QE and currency weakness has faded of late (sterling rose through last period of QE from BoE), but the backdrop is hardly positive for the currency (slow growth, higher inflation). EURGBP has been moving higher for past 5 sessions and key level to watch is 22nd October high at 0.81647, also 0.816489 (June high).Latest FX News
• USD: As we’ve talked about this week, showing more sensitivity to fiscal cliff developments and struggling to gain from general ‘risk-off’ moves caused by this.
• CNY: Latest services sector HSBC PMI softened from 53.5 to 52.1. Strong showing from Chinese equities, but after a dismal in the second half of this year.
• EUR: Eurozone finance ministers failed to agree on the details of a banking union, but markets are getting used to such difficulties. Euro still doing well, partly from lack of other liquid alternatives to dollar.• JPY: The yen back onto a path of weakening overnight after a period of short-covering. Dovish comments from BoJ deputy governor Nishimura helped push USDJPY to around 81.30 area.• AUD:GDP data overnight for Q3 just a touch softer at 0.5%. Household consumption held firm at 0.8% QoQ. Aussie has held firm just below the 1.05 level.• GBP:BRC shop prices index overnight showing high-street prices steady at 1.5%. EURGBP moving higher for past 5 sessions now, with 0.81647 key level on upside.
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