Sterling stable following Budget

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:20 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

The focus was firmly on the UK yesterday with the release of Bank of England minutes together with the presentation of the Budget to Parliament hogging the headlines. The re was a 7-2 vote in favour of keeping the asset purchase facility unchanged. The two dovish dissenters called for an additional £25bn but the MPC look far more likely to continue with the wait and see approach for the next few months. Although recognising the immediate upside risk to inflation from higher oil prices, downside risks remain from the overall slack in the economy. The Budget threw up little in the way of major surprises. Growth outlook for this year was revised up a notch to 0.8% with the Chancellor expecting the UK to avoid a technical recession. Data wise, UK public sector net borrowing in February was almost twice forecast at £15.2bn as tax receipts slowed and spending rose. Borrowing for the year is still expected to come in slightly below the £127bn target. 

Further evidence of the divergence between the US and EZ economies came with Minneapolis Fed President Kocherlakota arguing the FOMC should look to begin normalising monetary policy later this year while in Europe, rising bind yields again highlight the fragile state of the economy and the threat of sovereign issues coming to the fore once more. In this regard, Portugal, Italy and Spain are all in the firing line. Also weighing a little on the euro was a slightly more dovish than of late stance from ECB President Draghi. He noted there was no upside risk to inflation from ECB loans. Meanwhile, US Fed Chairman Bernanke said more had to be done in Europe to strengthen the banking system. 

Overnight, there was disappointment in a fifth consecutive contraction in China’s manufacturing sector which has hit risk correlated assets. 

Ahead today, Eurozone PMI index releases are expected to show improvement across the board although expanding growth in Germany looks unlikely to be enough to drag the whole region sectors out of contraction territory. In the UK, February retail sales are expected to fall from a buoyant January return but be well up compared to the same period a year ago. Back to the Eurozone where industrial new orders are expected to be weak. In the afternoon session, US jobless claims are seen holding steady over the week and we round off with an expected marginal improvement in consumer confidence in the Eurozone. 

Technical  

£-usd 

The pound hit its highest levels in almost three weeks yesterday but still fell well short of the strong 1.5985/1.6000 resistance zone. Momentum is beginning to slip and with yesterday’s price action creating a potentially bearish ‘outside day’, we would be watchful of a move back below the 200 day moving average (1.5857) then 1.5825. If seen, look for a drift back towards 1.5800 and 1.5765 initially then possibly on towards 1.5705/00 and 1.5615/05. 

£-eur  

Sterling recovered from an early morning setback which had looked to threaten rising trendline support at 1.1930 (1.1940 today). The subsequent recovery saw the pound close the day in positive territory and just above the 1.2000 level which has been something of a magnet over the last week and a half, leaving us in a fairly directionless environment. Resistance today at 1.2070/80, 1.2100 and 1.2165 with support at 1.1945/40, 1.1920/15 and 1.1875/70. 

Analysis of further currency pairs, forward contract pricing, and information on limit or stop loss orders is available at any time on request.                                          

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