Forex Providers News For January 28, 2014
GBP/USD currently trading at about 1.6520, GBP/EUR is at about 1.2070, so GBP/EUR is lower than where it was this time on Friday, with the GBP/USD also lower than where it was this time on Friday as well. The Sterling is seen to move lower across the board as a result of that Mark Carney’s speech. There wasn’t really too much in new news in Carney’s speech in Davos on Friday afternoon, as he did talked about how the Sterling appreciation can hamper export growth in the UK, and worried about productivity, but the key thing that the market was looking for was chartered around how forward guidance in the UK could possibly be changed over the course of next year or so.
Going forward, we’ll likely get some answers on that and the Bank of England’s quarterly inflation report in February. That was the signpost that Carney used in his speech. We saw the Sterling taken lower across the board as a result of the believe that whatever they do at the quarterly inflation report, is more than likely to extend the market’s expectation of when rate hikes in the UK are likely to take place. Some analysts are looking at as close at Q4 of this, others are looking at the late part of Q1 or early part of Q2 of next year, before we start seeing rate increases in the UK and it will be very gradual when they come and as a result we are thinking that the Sterling is quite overvalued at this current point in time.
The market is expecting the UK GDP on Tuesday – the first reading for the fourth quarter, the market is expecting 0.7%, but some analysts are looking at a slightly higher upward and that’s one of the things that govern the UK Pound’s movement over the course of the next 3-4 days or so.
Obviously, the key news on Friday was the big shift in emerging markets – whether that’s down to what’s been happening in Argentina around their currency controls, the poor manufacturing PMI we had out of China, political issues in Ukraine, Egypt, Syria, Thailand, or whether it’s the overall fear around whether we’re seeing a too quick reduction in stimulus by the Federal Reserve. This doesn’t really matter to be honest, but what we are seeing is emerging currencies get hit very hard, equities come off lower as well, and those safe haven currencies (JPY, CHF, USD, EUR and GBP) benefit. The Euro and the Japanese Yen were the main beneficiary on Friday.
Having said that, the main reason for this is because these were the currencies that traders use to fund these bets and riskier assets – you’ll sell Yen and you’ll buy the Mexican Peso, you’ll sell Euros and you’ll buy the South African Rand for example. As we started to see the pressure increase on those emerging markets, the desire to hold on to them obviously falls off and people sell out. They then have to reverse their positions back into the Euro and the Japanese Yen.
As far as today’s goes, we have the German IFO at 09:00 BST – we’re looking at business confidence in Germany, ZEW was poor last week, although the correlation is fairly bad, so we’ll look out for that (at 09:00 BST). We’ll also get existing home sales from the United States at 15:00 BST and we’re likely to continue to see those haven currencies bought over the course of the day after continuing poor news coming out of Asia overnight.