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Daily Currency Report 3/1/2014 - Sterling holds firm v Euro but drops against USD.

Daily Currency Report 3/1/2014 - Sterling holds firm v Euro but drops against USD.

 
Old Jan 3rd 2014, 8:24 am
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Default Daily Currency Report 3/1/2014 - Sterling holds firm v Euro but drops against USD.

UK News & Data releases

The Sterling to US Dollar exchange rate fell back sharply yesterday helped by a slightly weaker than expected UK manufacturing PMI, but primarily reflecting a reversal of the moves seen over the Christmas/New Year period. While these moves were well supported by moves in UK yields, the rise in UK yields itself may be subject to some further correction, as a rate hike is now priced by March 2015, and any weaker data may lead to this being pushed out once again.

Even so, it seems unlikely that UK data will be weak enough in the near term to push yields to a level that suggests scope for much further correction in GBP, with today's monetary data slate more likely to show strength. Levels below 1.64 in GBP/USD ought to provide good support, while levels above 0.83 in EUR/GBP should be seen as a medium term selling opportunity.

Euro Zone News & Data releases

The Euros strength in December exceeded the relationship with forward points that held through last year, and may well have been seasonally driven, as seasonal analysis shows strength in December is typical, followed by a reversal in January.

There may be scope for a EUR/USD move down towards 1.35, judging by the relationship with forward points, though contracting peripheral spreads suggest the EUR is not likely to suffer major fundamental weakness in the short run.

Japanese News and Data Releases

JPY weakness was a feature of November and December, especially against GBP and the EUR, but yesterday saw the first sign of reversal in this move, which is seasonally typical.

While there are still plenty who see further yen weakness as being necessary to push Japanese inflation higher, heavy JPY short positioning combined with a lack of evidence of any consistent net capital outflow from Japan makes it hard to see the source of new yen sellers in the near term. If momentum stalls, some profit taking could be triggered that leads to some sharp short term JPY gains, even if there is no fundamental change in the Japanese story.

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