Policy makers in wait and see mode

Morning Comment       

Current mid-market inter-bank spot rates (as at 07:20 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

The risk rally we have seen throughout this shortened week came to an abrupt halt yesterday as Fed Chairman Bernanke disappointed QE3 supporters with a more neutral than expected outlook in his speech before the Joint Economic Committee. Equity and commodity markets about turned and the dollar halted its recent decline. 

Matters were not helped by a 3-notch downgrade for Spain by Fitch although an the news did not surprise markets unduly following the recent downgrade by Egan Jones. Earlier, 2, 4 and 10 year bond auctions in Spain went well although higher yields were the offset here. 

In the UK, the Bank of England held both interest rates and the asset purchase facility steady. Reaction was muted in the absence of any accompanying statement as is the norm when no changes are made. Coming on the back of a neutral ECB on Wednesday and added to Fed-speak above, it looks very much like policy makers are keeping their powder dry until the G20 meeting the week after next is out of the way. Data wise, service sector PMI surprised to the upside with a steady reading of 53.3 against expectations of a dip to 52.4.    

A surprise 25bp rate cut in China has also raised fears of weak data releases this weekend has also affected risk sentiment. 

Ahead today, the UK takes centre stage with producer price inflation expected to hold steady at 2.3% from a year earlier while the next 12 months inflation outlook from the bank of England/GfK is also released this morning. 

Technical  

£-usd 

Yesterday afternoon the pound was riding high, over 3 cents up on last Friday’s low. We open this morning with gains trimmed to 2 cents and upward momentum tailing off. Support between 1.5435 and 1.5405 will be the gauge of short term sentiment with a break lower suggesting a test of the longer term support at 1.5380 then 1.5325 and last week’s 1.5270 low. To the upside, we will monitor 1.5530, 1.5600 and 1.5665. 

£-eur  

We open today more or less in the middle of this week’s 1.2280/1.2425 range but importantly with 1.2265 support intact. While this level hold, preventing a slide back towards the strong 1.2170/60 area, bulls still retain the upper hand. Above 1.2425 is needed to kick start another upside push towards 1.2465, 1.2510/25 and 1.2575. 

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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