No QE from the BoE…yet
In a week packed with central bank announcements, the
Bank of England’s MPC decided against topping up its quantitative easing
operations. Mervyn King remained in the minority then, which was a surprise in
itself and suggests his influence is waning ahead of his summer exit. Sterling
only benefited from a brief spell of relief, which tells you all you need to
know about how confident most market players are that the BoE will pull the
trigger on QE at some point in the coming months.
February’s UK PMI growth figures were bailed out by a
better-than-expected services sector figure, which probably played a
significant part in convincing the majority of MPC members to keep their powder
dry with respect to their QE votes. Still, as will likely be shown by tomorrow’s
UK GDP estimate, it remains touch and go as to whether the UK triple-dip
recession will be avoided. Tomorrow’s UK manufacturing and industrial
production figures also look unlikely to kick-start sterling demand, with only
very meager growth expected from the two sectors in January.
We are confident the MPC will be forced into action in
the next few months as far as QE is concerned, though having paused in March,
they may be convinced to wait until May, by which time they will have
confirmation of the UK’s Q1 GDP figure. UK trade balance data could also be
disappointing tomorrow morning, with producers reporting a lack of new export
orders, despite the plummeting value of the pound.
Draghi
not so dovish despite weak eurozone output
We continue to see a disparity between the hard data
that is coming out of the eurozone – watch out for Wednesday’s eurozone
industrial production figure, which will likely show no growth – and the
improving eurozone confidence levels. Still, Draghi sounded in confident mood
in his monthly press conference last Thursday. He was hopeful that the eurozone
recession would stabilize in the first half this year and perhaps even begin a
recovery later on in the year.
Despite events in Italy, sentiment towards the euro is
actually holding up pretty well at present then, which leads us to believe
there is unfinished business with GBP/EUR’s low down towards €1.1350. We could
well see this level revisited in the sessions ahead, though a major push below
this still looks a stretch.
US
unemployment data pushes the USD higher still
The greenback is loving life thanks to further
domestic economic improvements. The US unemployment rate dropped to 7.7% and we
saw a major hike in news jobs in February. The US recovery is far from “out of
the woods” territory but things are definitely looking up and the greenback is
benefiting as a result. 2013 is shaping
up to be a bumper year for the USD.
End of week forecast
|
GBP /
EUR
|
1.1350
|
|
GBP /
USD
|
1.4770
|
|
EUR /
USD
|
1.3000
|
|
GBP /
AUD
|
1.4500
|
|
|
|
We envisage further weakness in the GBP/USD pair.
Tomorrow’s slew of UK data, which looks likely to disappoint, could see
sterling stoop to areas close to $1.4770. Meanwhile, EUR/USD is still
threatening to move below the $1.30 level. GBP/EUR is also looking vulnerable,
with €1.1344 a potential target in the coming sessions.
