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GBPUSD best levels in over a year

GBPUSD best levels in over a year

Yesterday marked a day of highs, lows and turnarounds in various currency pairs amidst what was a fairly volatile day in the financial markets. The Euro weakened markedly after yesterday’s ECB rate meeting. After the inevitable ‘no change’ verdict, it was President Trichet’s comments that destabilised the single currency. Last month, his hawkish remarks had raised expectations of a near-term rise in eurozone interest rates. This, along with easing fears over eurozone sovereign debt, had been instrumental in pulling the euro up almost 6% against the Dollar from a low of $1.2870 at the start of the month. Yesterday though, anyone betting on further comments of inflationary concern will have been left disappointed. Mr Trichet said the rise in consumer price inflation was anticipated and, with further rises factored in, the ECB would not use this as a trigger to tighten monetary policy. The Euro promptly took its biggest plunge for two months against the Dollar. It is arguable that the Euro rally had been overdone, as realistically there hasn’t been any definitive development from from the core member states nor the ECB on the sovereign debt crisis. Given that it seems more that the absence of bad news had been underpinning the rally, maybe its sharp drop yesterday is maybe not surprising.

For Sterling, last week’s GDP shocker seems largely forgotten following a week of positive PMI data. Yesterday’s PMI release for the service sector completes the trio of PMI surveys this week, along with manufacturing and construction. In all cases this week’s releases for January showed a strong improvement on December. As with the other PMI indices, a benchmark of 50 is set for the previous month, with yesterday’s survey showed a headline reading of 54.5 in January, against consensus for a 51.3 reading. Further, scratching beneath the surface reveals more inflationary pressures that will only hasten the Bank of England’s need to raise rates. Crucially, the input prices subsidiary index within the PMI headline jumped to 65.8, following a 60.5 reading in December, in what is looking like a strong month on month trend. Prices charged for services by companies also rose at their fastest rate since September 2008 as business sought to pass on not only their own costs but the expense of the VAT hike. Sterling strengthened sharply against the Dollar on the news but has gradually retreated since after positive US data in the afternoon. Conversely, Trichet’s comments yesterday afternoon merely accelerated Sterling’s rally against the Euro. GBP/USD now stands at levels that, barring the brief spike following the Fed QE2 decision in November, haven’t been seen in over a year.

The focus today is on nonfarm payrolls in the US. Indicators this week have been encouraging, with a 187K rise in the ADP employment measure, and good rises in the employment components in the manufacturing and nonmanufacturing ISM indices. That might suggest some upside to the consensus expectation for a 146K rise in payrolls, but the weather again represents a substantial wildcard in the data.

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