The Pound is stronger against both the USD and EUR this morning, riding high on yesterday’s encouraging economic data. British consumer confidence gained to the highest level in seven months as slower inflation eased the pinch on household spending. The Pound gained even after BoE Governor Mervyn King told reporters last week that he expects inflation to slow “sharply” this year and that policy makers have room to ease monetary policy further. Energy costs are also falling in response to a drop in wholesale costs. Nevertheless, the turmoil in mainland Europe threatens to tip the UK into another recession, and labour conditions likely won’t improve in the near term, thus making the current sterling-strength likely temporary.

The Dollar is mixed this morning against its most actively traded counterparts, gaining against most European currencies while remaining lower against the higher-yielding commodity and emerging market currencies. The dollar has pared early declines after disappointing US data sapped demand for riskier assets, pushing both stocks and commodities into the red. Most notably, consumer confidence tumbled to 61.1 versus the median expected gain of 68.0, a disappointing result after two straight months of surprising results. The reading proved lower than even the most pessimistic forecast as economists did not account for the pressure higher energy prices were placing on households with jobs still difficult to find. The weakness highlights just how fragile consumers believe the economic recovery to be, and reflects poor job prospects as well as the intensifying political divide that has gridlocked Washington.

Elsewhere, Chicago PMI dropped to 60.2 from 62.2 and S&P CaseShiller Home Prices fell by more than expected. While encouraging economic data had begun to show signs of support to the dollar in the later part of 2011, the positive tone has given way to clear signs of a slowing economy thus reignited the debate between “safe-haven” demand and further quantitative easing in the US.

The Euro turned early gains into sharp losses against both the USD and GBP after the disappointing data out of the US sent investors seeking relatively “safer” assets. The common currency had initially pushed higher after Greek PM Papademos told reporters that he’s “focused on the target of brining the negotiations to a successful conclusion by the end of the week” including the much-debated haircut to be imposed on the private sector. The EUR also gained after Eurozone officials finalized a permanent 500B EUR rescue fund and signed off on a deficit-control treaty. However, with sovereign debt yields again on the rise elsewhere within the Eurozone, there is little confidence that even should a Greek debt deal be completed on time, the underlying economic deficiencies will be addressed.

Data released 1^st February 2012

UK      09.28 CIPS Manufacturing PMI (January)

EU      10.00 HICP Flash (January)

US      13.15 ADP Employment (January)

US      15.00 Construction Spending (December)

US      15.00 ISM Manufacturing (January)

US                  Vehicle Sales (January)

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The Pound consolidated against both the USD and EUR on Friday as investors focus on US economic growth and the on-going Eurozone debt crisis. The pound saw steep overnight losses against the JPY as the pair approached an all-time low, with the weakness thus permeating across the other sterling crosses. With little economic data due in the UK, sterling will likely remain well entrenched within its recent ranges moving into the new week.

The Dollar consolidated towards the lower end of its recent ranges against most of its major counterparts on Friday.
Stocks and commodities are off to a shaky start after the most recent reading of US GDP fell short of expectations at 2.8%, but was much higher than the 1.8% pace recorded in the third quarter. A disappointing holiday shopping season and government spending cuts led to the underperformance, but the data does provide some validation for the Fed’s decision to keep rates on hold for the next two to three years. Nevertheless, University of Michigan confidence registered better than expected at 75 versus 74 in the previous reading. Dovish commentary from Fed policymakers is also taking its toll as expectations grow that QE3 may be closer than previously thought.

The Euro made gains for the second week against the USD as confidence builds that a deal to extend a second bailout to Greece is at hand. EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters that Greece was “close” to reaching an agreement with its creditors, but final private sector involvement remain unclear.

The common currency’s upside potential also remains limited as investors begin to price in further monetary easing in the coming months. ECB President Draghi told reporters at the World Economic Forum in Davos, Switzerland that they don’t yet know if the Bank’s record injection of liquidity into the banking system is finding its way into the real economy. He went on to say that there is a lag, but that “we know for sure we have avoided major credit crunch and a major funding crisis.”

While the central bank’s operations may have eased improved interbank credit conditions, a report released this week showed that loans to households and companies contracted by 0.7%, the most since the records began in 1991. The ECB will offer a second round of three-year interbank loans on February 28th.

Data released 30^th January 2012

EU      10.00 Economic Sentiment (January)

Industrial / Services / Construction

US      13.30 Personal Income / Consumption (December)

Core PCE

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The Pound made gains against the Dollar while remaining relatively unchanged against the Euro yesterday. The Pound has been helped higher against the dollar after the Fed’s dovish statements, but it remains under pressure against most of its other counterparts on the continued flow of disappointing British economic data. UK retail sales slid this month at the fastest pace in nearly three years after a report earlier this week showed that the British economy in fact contracted in Q4 2011, raising the odds of another recession.

However, while the BoE is widely expected to introduce a fresh round of quantitative easing in February, the Fed’s ultra-dovish stance makes their anticipated actions look comparably restrained.

The Dollar declined against the Pound and the Euro following a pledge from the Fed to keep interest rates exceptionally low until 2014. With US assets yielding all but nothing for at least the next two to three years, investors are seeking higher returns elsewhere. Further weighing on the dollar, Fed Chairman Bernanke paved the way for a third round of large-scale bond buying should unemployment remain at or near its current 8.5% and inflationary pressures continue to ease. While global economic growth continues to fall short of expectations, US data has generally surprised to the upside, leaving investors questioning the Fed’s dovish stance.

Durable goods orders fell to 3% in December, down from 4.3% in the previous month, but much better than the 2% expected. Weekly jobless claims ticked slightly higher to 377k versus last week’s 356k, but the measure remains well entrenched below the key 400K barrier. Leading indicators also fell short of expectations at 0.4%, but were higher than last month’s downwardly revised reading of 0.2%.

Investors will pay particularly close attention to GDP data due today, fearing that the Fed announcement must mean that they are positioning for a shortfall the market has not anticipated. While the Fed’s lax monetary policy will weigh on the dollar in the short term, the general outperformance of the US economy will provide support in the longer term.

The Euro made gains against the Pound while remaining relatively unchanged against the Pound  as European policymakers inch closer to brokering a deal to provide Greece with further financial aid. It appears that European officials understand the severity of the situation should action not be taken, and while a deal is ultimately expected, investors are remaining largely on hold until a final deal is brokered.

EU Finance Minister, Jean-Claude Junker told reporters this morning that “there’s no default without contagion. It is in everyone’s interest to avoid a Greek default.” However, avoiding the spread of contagion is only half the battle as all estimates point to a mild recession in Europe in 2012. Nevertheless, the common currency is finding support this morning, albeit within its recent ranges.

Data released 27^th January 2012

EU      09.00 M3 (December)

3 Month Moving Average

US      13.30 Advance GDP (Q4)

US      14.55 Final Michigan Sentiment (January)

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 The Pound made small gains against the Euro while declining against the Dollar following a report showing that the British economy is in fact contracting. GDP shrunk by 0.2% in the 4th quarter after expanding by 0.6% in the previous quarter. With the outlook worsening rather than improving for the British economy, it appears that the UK is headed toward recession. The Pound also came under pressure after minutes from the BoE’s last meeting showed that another round of quantitative easing may soon be at hand. Bank Governor Mervyn King told reporters yesterday that policymakers can increase stimulus again if needed to guard against a “renewed severe downturn.” Nevertheless, the Pound remains within its recent ranges as demand for the perceived safety of British government assets remains high with the ongoing turmoil in the Eurozone.

The Dollar made gains against the Pound and the Euro as declining stocks and ongoing worries over Eurozone debt are outweighing a possibly dovish stance from the Fed.

Fed Chairman, Ben Bernanke said the US central bank might consider further monetary easing through bond purchases while further delaying the timing of an eventual interest rate rise until late 2014, some 18 months later than previously forecast. The dovish Fed tone could well dominate forex markets today, especially as the economic calendar is mostly second tier data.

The Euro declined against the Pound and the Dollar after the ECB made it clear that they are opposed to restructuring Greek bonds. S&P added further severity to the situation when it released a statement that a Greek default was all but a foregone conclusion, even should policymakers and the private sector broker a deal over a second bailout package. German Chancellor Merkel cast doubt over the sustainability of the current situation, telling reporters that “We haven’t overcome the crisis yet. Of course, there’s Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.” The grim outlook was further compounded yesterday when the IMF downgraded their assessment of global growth for 2012, adding that Europe will likely slip back into a mild recession.

Data released 26^th January 2012

UK      11.00 CBI Distributive Trades Survey (January)

US      13.30 Durable Goods (December)

US      13.30 Initial Jobless Claims (w/e 21st January)

US      15.00 Leading Indicators (December)

US      15.00 New Home Sales (December)

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The Governor of the Bank of England, Sir Mervyn King, has urged against “despair” because “all crises come to an end” as official figures were expected to show that Britain is heading back to recession.

The Dollar made gains against the Pound and was choppy against the Euro.  Volatility returned to the market with the EU finance ministers rejecting the Greek bondholders 4.0% coupon demand on a debt swap. Stocks dropped in Europe and in the US and helped the Dollar gain on safe haven demand. The dip was shallow though and most markets pared losses into the end of the session.  Looking ahead, FOMC Interest Rate meeting forecast to hold at 0.25%. Focus on the FOMC Statement and Press Conference afterwards.

The Euro made gains against the Pound and the Dollar yesterday bolstered by optimism that Greece was set to cut a deal with its private sector investors on a debt swap. However, with little sign of a resolution as yet, the euro gave up some of its gains versus the dollar and other majors in early morning trade. The talks are now expected to be concluded by the end of this week. The main stumbling block at this point seems to be over what coupon creditors will receive on the planned new bonds. Some official say that Greece will pay not more than 3.5%, while creditors are pushing for more than 4%. European Union officials have stepped up pressure on Greece and its creditor banks in a complex game of three-way brinkmanship, signalling that they will allow a Greek default to run its course unless both sides accept more pain.

Data released 25th January 2012

UK      09.30 BoE Minutes of 11th – 12th MPC Meeting
UK      09.30 Prelim GDP (Q4)
UK      11.00 CBI Industrial Orders (January)
US      15.00 Pending Home Sales (December)
US      17.30 FOMC Interest Rate Announcement
US      19.15 FOMC Press Conference

This week the BoE meets, and there is speculation that they will further their asset purchase program, or quantitative easing, to cap borrowing costs. Despite this, sterling still strengthened roughly 2% versus the dollar this past week as it looks like Greece might come to the table with an acceptable offer to avoid default.

The Dollar declined against the Euro and the Pound yesterday driven by swings in risk sentiment.  The tone for the week could well be set by the extent of progress in the talks on Greek debt restructuring. In the US, GDP data for Q4 are up for release. A growth rate of 3.0% is expected, up from 1.8% in Q3. Stronger consumption growth, a boost from net exports, and positive contribution from inventories will lift GDP growth.

The Fed meeting on Wednesday will be the first meeting with Fed interest rate projections, and it will be very interesting to find out when the Fed expects the first interest rate hike, and how much tightening is expected in the following years. The first hike is anticipated to come in the second half of 2013. Other releases this week will be durable goods orders and home sales and prices.

The Euro made gains against the Pound and reached its highest level against the USD in nearly three weeks on hopes that Greece and Eurozone banks could rise above their mountain of debt. Germany and France are pressing for talks between Greece and its private creditors to cut its soaring debt to sustainable levels and said they were committed to seal a new bailout arrangement for Athens by March to avert a default.

Official news sources stated that the several rounds of meetings between Greece and its private creditors are collaborating a deal which would bring a loss of 65-70% to private bondholders of Greek bonds. In addition, European stocks hit their highest close since early August, largely due to the rally in Eurozone banks after France and Germany called for a relaxation of capital required from global banks to prevent a credit crunch. Despite its recent sharp gain in stocks, European banks are facing cautious investors who fear the risks of potential debt write-offs.

Data released 24^th January 2012

UK                  09.30 PS Net Borrowing (December)

EU                  10.00 Industrial Orders (November)

Global            15.00 IMF World Economic Outlook (January Update)

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The Dollar declined against the Euro and the Pound on Friday. Time is running out for Greece to strike a deal with bondholders on the beleaguered nation’s debt haircut. US housing data countered weakness in Google’s stock with December Housing starts rising 5%.  Looking ahead, No data today and the Chinese New Year holidays begin and last all week and may affect the Asian session liquidity.

The Euro made gains against the Dollar while declining against the Pound on Friday Shaking off debt downgrades from S&P and traders bought the single currency on hopes that Greece was set to conclude its debt deal with private investors. It came under some selling pressure in early morning trade as it now looks like an agreement has yet to be reached.

Furthermore, traders reported that demand for short covering deterred a marked slide in the euro in thin trade, with many Asian markets closed for the Chinese New Year. In addition to the on-going Greek debt talks, there are several other events in the week ahead that could help to determine market risk appetite, including potential comments from attendees at the Davos World Economic Forum, as well as the IMF’s latest update.

Data released 23rd January 2012

EU      15.00 Flash Consumer Confidence (January)

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The Dollar declined against the Pound and the Euro yesterday. The Dollar index is down for a third straight day as weak housing and manufacturing data outweighed a strong labour market report, prompting investors to increase odds that the Fed may yet pursue a third round of quantitative easing.

CPI data registered in line with expectations at just +0.1% month over month, leaving the Fed room to keep monetary policy on hold for the foreseeable future. Housing starts fell to 657k and the Philly Fed Index to 7.3, but weekly jobless claims tumbled to 352k, down 50k from last week. Moreover, positive developments in Europe as struggling Eurozone member’s auction off a large load of debt without a hitch are generally encouraging risk appetite.

As such, investors are taking the opportunity to book profits on the dollar’s precipitous rise over the past several weeks, but weakening global economic fundamentals continue to support the longer term trend for a strong dollar, at least for the time being.

The Euro made gains against the Pound and the Dollar as investors, short on the common currency, closed out positions after a Spanish debt auction drew more demand than needed. Nevertheless, the long term view for the EUR remains shaky at best with investors now pricing in a breakup of the Eurozone by the end of the year with a 37% probability, up from 32.5% just one week ago.

With strong data released in the US, and with stocks and commodities building on yesterday’s gains, the EUR is enjoying this brief reprieve. However, funding costs remain a cause for concern and the deadline for a second Greek bailout of March 20th is fast approaching.

Data released 20^th January 2012

UK      09.30 Retail Sales (December)

US      15.00 Existing Home Sales (December)

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The Dollar declined against the Euro and the Pound as strong economic data and debt auction results in the Eurozone encourage investors to assume riskier positions. While the Dollar Index is 0.53% lower this morning, it remains near the top of its recent ranges supported by resilient economic data out of the US and continued struggles in the Eurozone.

On the economic data front, the Empire Manufacturing Index came in better than expected at 13.48 and the Philadelphia Fed survey on Thursday is expected show further improvement. Inflation data is also on tap for the week ahead, and is expected to show a decline in the annual rate to 3.1% from 3.4% whereas core inflation should remain unchanged at 2.2% y/y and rise 0.1% m/m. This week also offers a batch of housing data with the NAHB housing market index and housing starts on Wednesday and Thursday respectively. Both have shown improvements in recent months, suggesting that the housing market is finally bottoming. PPI and Industrial Production will also be released later this week, with a modest improvement expected in both. While this week’s releases will help set the tone for the US economy for at least the first half of the year, the currency market will remain largely focused on the developing situation on the other side of the Atlantic.

The Euro made gains against the Pound and the Dollar yesterday receiving a respite from relentless selling pressure on positive news from the region and optimism over the global economy. The single currency rose to peaks against the Dollar after Germany reported that its ZEW economic sentiment index rose by the largest amount on record to -21.6 in January from -53.8 previously. The strong improvement in German outlook raised hopes that Europe’s largest economy is showing resilience despite the region’s challenges. Pressure on the EUR also eased after yields on Spanish and Greek debt fell following successful auctions in both nations. Recent positive  news serves as a reprieve from the cloud hanging over Europe. Ratings agency S&P continued last week’s sovereign downgrades of European countries which stripped France of its top rating to AA+, by downgrading Europe’s EFSF rescue fund to AA+ yesterday which sent the euro to lows at $1.2624. With little end in sight to its challenges, pressure on the euro is likely to continue with gains such as those seen today likely proving temporary.

Data released 18^th January 2012

UK      09.30 Claimant Count (December)

ILO Unemployment (November)

UK      09.30             Average Weekly Earnings (November)

Ex Bonuses

US      13.30 PPI (December)

Ex Food & Energy

US      14.00 TICS Capital Inflows (November)

US      14.15 Industrial Production (December)

Capacity Utilisation

US      15.00 NAHB House Builders’ Sentiment (January)

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The Dollar made gains against the Pound and Euro as concerns over S&P ratings downgrades in many European nations heightened risk aversion. Meanwhile, the US trade deficit widened more than expected as domestic companies increased imports of crude oil and automobiles. The trade gap expanded to 10.4% or $47.8BN, the widest seen since June 2011. Separately, confidence among U.S consumers has risen to its highest level in eight months. The University of Michigan’s preliminary index of consumer sentiment rose to 74 from 69.9 at the end of December, higher than economists forecast of 71.5. Limited wage gains and falling home prices however may constrain further positive sentiment in 2012.

The Euro declined against the Dollar and the Pound on Friday after Italian bond auctions failed to meet expectations today. Meanwhile official news reports in France stated S&P rating agency have cut Italy, Spain and Portugal by two notches and France by one. News of the downgrade has put investors on high alert for further downward pressure on the EUR. The Eurozone’s trade balance (+6.1BN) was the largest seen since 2004, suggesting that a weakening euro is having positive impacts on exports. A key focus will be on the debate over the size and nature of Greece’s haircut to private sector involvement (PSI) including private bondholders of Greek government debt. Any solution is likely to be realized after the EU summit on January 30th.

Data released 16^th January 2012

US      Martin Luther King – Market Holiday

No Significant data

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