Opportunity to sell USD and EUR?
Sterling fell from its recent peaks yesterday, following the labour market data and Quarterly Inflation report. However, market talk is that the move was related to positioning rather than anything particularly dovish from the releases.
The employment data was mixed, the 3M/3M employment change was stronger than expected and actually puts the unemployment rate at 6.76%. While in the Quarterly Inflation Report (QIR), Carney revealed a relatively balanced stance.
While he acknowledged that the amount of spare capacity had fallen slightly, he opined that the pace at which slack was being used up will slow going forward and indicated that there remained further scope for this slack to be eroded before rate hikes would be needed.
As such here was little new from Carney’s comments, though rate hike expectations were pared back. The market now prices in the first rate hike for April 2015. With little on the UK calendar today, we think further GBP downside looks limited from here.
The EUR, however, could see more interest today after being a sideshow to the GBP yesterday. Eurozone CPI final revision will be watched closely. ECB officials, Constancio and Mersh are also due to speak this morning. Their comments will be also be closely watched for further indications that the ECB plan to cut rates/inject new stimulus at next month’s meeting.
In the US, CPI data will be watched to see if inflationary pressures are starting to build. Growth indicators of the last quarter’s activity will also be considered. These two factors are however likely to have equal and opposite effects on USD – US growth being a positive for the global economy and thus potentially encouraging moves out of USD into riskier currencies whilst inflationary pressures potentially bring forward possible rate hikes and thus increase the technical attractiveness of USD.
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