Morning Report

Richard Driver, Analyst The single currency had a positive early session yesterday, and equities advanced with buyers hoping overnight assurances that the Greek-PSI negotiations were close to a positive conclusion. The extent of market frustration over the dragging out of this Greek debt deal was evident however, as support for the euro soon disappeared when the US started their day. As a result the pound gained almost a per cent against its euro counterpart during the afternoon session. Greek debt-swap talks will again dominate the market today, with traders looking for positive signs of a conclusion by the end of the week. Portugal will also once again feature in investors thinking as they look to sell bills today amid concerns over their economy. Meanwhile the first of the UK’s PMI readings is out this morning with manufacturing expecting to improve slightly.
STERLING/EURO: Sterling is holding onto its gains it made yesterday with the UK’s Manufacturing PMI figure eyed this morning. We will get an idea of the UK’s economic health when the Manufacturing PMI figure is released this morning. Positive readings from each of the PMIs released this week should go some way to discouraging the MPC to introduce another bout of quantitative easing – this would be positive for the Pound, considering it has been largely priced in already. The euro should remain under selling pressure today with Portugal again in the spotlight when it sells 105-day and 168-day bills. Greek talks will again affect this pairing, with investors reluctant to buy the euro on anything less than conclusive action.	FORECAST
STERLING/US DOLLAR: Sterling hit a 2 ½ month high against its US counterpart yesterday amid month end dollar selling. Month-end rebalancing requirements, and slightly improved risk appetitive after positive Chinese Manufacturing data have helped this pair to a 2 ½ month high, with Sterling holding onto its gains this morning. Weak Consumer confidence from the States also put some pressure on the Greenback, with Manufacturing PMI readings from both the UK and the U.S likely to affect this pairing today. Sterling will struggle to hold onto these gains if further negative sentiment is produced from the euro-zone, with investors still favouring the safe-haven dollar.	FORECAST
EURO/US DOLLAR:  The single currency has repaired some of its losses from yesterday this morning, but holding onto these gains will be tough going. The recent strength from the euro, having gained 1 per cent through January, seems to have run its course as it failed to break the key 1.32 resistance level yesterday once again. This is despite broad dollar selling on the back of expectations that the Federal Reserve is paving the way for another bout of QE. The euro will continue to struggle today if Greek debt concerns aren’t resolved. Employment and Manufacturing data from the States this afternoon will also have a bearing on this pair.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The Australian dollar weakened on speculation that U.S. jobs data will forebode a slowing recovery, reducing the demand for higher-yielding assets. The Aussie was earlier supported by China’s Purchasing Managers’ Index which showed the manufacturing sector expand slightly in January, with the Index up to 50.5 from 50.3 in December, above a forecast of 49.5. Unfortunately this did not stall the Aussie weakening against most of its 16 major counterparts as Asian stocks extended losses. This pairing is now trading above 1.48 again.	FORECAST
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar similarly to the Australian Dollar, suffered a decline on speculation that U.S. jobs data will show a slowing recovery and dampening the demand for higher yielding assets. New Zealand dollar weakened of the back of Asian stocks extending their losses last night, after a solid day of strengthening against most of its major counterparts.With China being New Zealand’s second-biggest export destination, all eyes were on the Chinese PMI data released. The figures showed an expansion this month to 50.5 from 50.3 in December. This was above the forecast of 49.5 Overall the Kiwi is looking the strongest it has against sterling since September last year.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling gained against the Canadian dollar yesterday as their GDP figure undershot, but declines this morning. Sterling gained against the Loonie yesterday as Canada’s GDP figure undershot expectations, coming in at -0.1% down from an expected rise of 0.2%. This was largely due to a drop in output after a shutdown by crude oil-producers and lower natural gas extraction. Sterling has declined this morning, as manufacturing data from China has improved risk sentiment somewhat, but the price for this pairing will still largely hinge on news coming from the euro-zone.	FORECAST
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