Sterling struggles to stay above €1.20 but hits new high v US Dollar...
 

Sterling was helped higher following the strong CBI Survey yesterday but Draghi’s comments helped support the Euro. Most still favor the Euro under-performance against GBP, however in the absence of any dovish news from the Euro Area and with little on the UK calendar today, some expect 1.2045 to be a possibility.

There has been a lot noise from ECB officials of late, with comments broadly centred on the toolkit available to the ECB should further easing measure be required. Recent headlines suggesting the possibility of negative deposit rates weighed heavily on the Euro, however this was played down by Draghi yesterday and in turn the Euro regained some of its losses. It is unclear the reason behind the recent dovish comments from CB officials, especially so soon after the ECB announced a refi rate cut earlier this month. Whether this is just jawboning or perhaps there is growing concerns within the committee it’s unclear. There are a number of ECB members speaking today which could see some interest. German IFO survey could also attract some attention; PMIs yesterday were better than expected. In the absence of a continuation of dovish comments most expect EUR/USD to remain well supported; the recent low of 1.3400 should be decent support on the downside.

The FOMC minutes revealed nothing significantly new yesterday; however there was clear indication that the FOMC were preparing to shift its focus from asset purchases to forward guidance. There was extensive discussion about how the FOMC would communicate the lower rates for longer message in hope to convey a clear separation between tapering and tightening policy. Indications that an on-going improvement in labor market would warrant tapering in coming months likely helped USD gains against the high-yielders and JPY. However, it has always been the case that ‘tapering’ will be dependent on the data. With little on the US calendar today, yesterday’s Philadelphia Fed survey was much weaker than expected and should keep market expectations of early tapering contained.

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