Caxton FX Currency Blog

Richard Driver, Analyst The pound had another good day against its US counterpart yesterday, cementing its two-and-a-half month high, as Manufacturing PMI data in the UK showed a surprising return to growth. Germany also posted solid manufacturing data, which helped support the euro, trading 0.3% up against the pound yesterday. The near term outlook for Sterling will depend on the Bank of England’s asset purchasing programme. Any surprises to the upside in the UKs Construction and Services PMI data may see a scaling back of the extra 50 billion pounds expected on February 9th. Today the market’s attention will yet again turn to Greece, with concerns likely to mount as we approach the end of the week with no resolution to the debt swap talks in sight. As far as economic announcements go, the markets main interest today will be surrounding the UKs Construction PMI data out this morning, and Fed chairman Bernanke testifying on the economic outlook for the States.
STERLING/EURO: Sterling traded down 0.3% yesterday, but support remains for the pound as concerns over the single currency mount. Concerns that Greece hasn’t yet concluded talks on a debt-swap deal with its creditors, and fears that Portugal may be the next country to ask for a bailout have seen investors cutting their exposure to euro zone sovereign debt and investing in the safer haven UK guilts, supporting the pound in the short term. The UKs economy is still facing the possibility of a recession however, with the Bank of England likely to introduce another bought of Quantitative Easing on February 9th to help ease the flagging economy. If UK construction data is positive this morning, we could see support for the pound as investors scale back expectations of the extent of QE introduced.	FORECAST
STERLING US DOLLAR: Sterling continues to do well against the dollar, but with QE expectations around the corner this rally could be short lived. The pound had a good rally against the greenback yesterday, as dovish tones from the Fed about QE3 and disappointing manufacturing and jobs data combined to weaken the dollar. Talk of introducing another bought of Quantitative Easing in the UK to help a struggling economy will however undermine the pound against the greenback in the short term. If Bernanke is hawkish on the U.S economic outlook today we would expect a reversal of this rally to happen imminently, although market expectations are for him to strike a more dovish tone.	FORECAST
EURO/US DOLLAR: The euro is holding onto gains it made on the 31st January but remains vulnerable to the downside. The euro held onto its gains yesterday as a largely weak dollar failed to capitalise on mounting euro-zone concerns. Strong rhetoric from Angela Merkel about uniting Europe to bring stability to the area met with a risk-on environment, with equities rallying. The safe haven dollar will typically be sold during these fleeting moments of confidence, but demand for the euro remains thin. Concerns over Greece and Portugal will keep support for the euro grounded today as we head towards the end of the week with no resolution in sight. Fed Chairman Bernanke’s speech later on this afternoon will be eyed as a key sign to his economic policy going forward, with direction likely to be dictated on what is said.	FORECAST
STERLING/AUSTRALIAN DOLLAR: the Australian dollar maintained two day gains as Asian equities extended a global stocks rally, spurring investor appetite for higher-yielding assets. The Aussie reached a five-month high after a report showed its country’s trade surplus had increased, and surpassed analyst predictions. Australia’s trade surplus widened in December to A$1.71 billion from a revised A$1.34 billion the previous month, exceeding economist’s estimations of A$1.2 billion. The Aussie also rose yesterday after data showing manufacturing in the U.S. and China expanded. This pair is trading below 1.48 today and looks to be moving lower.	FORECAST
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar also maintained its two day gains as Asian equities extended a global stocks rally, increasing appetite for higher yielding assets.  The Kiwi rose yesterday after China and the U.S. manufacturing data was released, showing an expansion and helping New Zealand’s dollar to continue strengthening. Demand for the Kiwi was limited however, after whole-milk powder prices fell for the fourth straight auction. Today we should see this pairing trade within a fairly tight trading range.	FORECAST
STERLING/CANADIAN DOLLAR: The pound is currently holding onto its gains this morning as a positive manufacturing figure yesterday bolstered demand. Sterling is holding onto the gains it made on the 30th January, with a better than expected Manufacturing PMI figure helping to support the pound. There is currently a risk on environment however, as global manufacturing data showed an upturn which will support higher yielding currencies such as the loonie. Today direction for this pair will be dictated by the UKs construction PMI figure. We may see a sell off with a bad figure, but this pair should trade within a fairly tight range today.	FORECAST
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