- Canadian CPI Accelerates More Than Expected, USDCAD Plunges Fri, 19 Mar 2010 12:29 GMT
- Overnight Interest Rate Update 03.18.10 Thu, 18 Mar 2010 10:37 GMT
- Overnight Interest Rate Update 03.19.10 Fri, 19 Mar 2010 05:01 GMT
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- Mar, 18 A Double Top in Oil Could Spell End For Canadian Dollar Rally
- Mar, 17 Pound Direction to Be Determined by Risk Trends, As BoE far From Change in Monetary Policy
- Mar, 15 Euro Looks to Risk Trends For Direction As ECB Expected to Remain On Hold
- Mar, 12 USD/JPY Looks To FOMC Meeting To Determine Next Trend
- Mar, 09 Pound Directionless As Monetary Policy Remains Uncertain
- Mar, 08 Euro Looks For Direction as Concerns Over Greece Wane
- Mar, 05 New Zealand Dollar Takes Direction From Commodity Prices As Yield Outlook Fades
- Mar, 03 Yen’s Divergence with Risk Appetite Could Present Opportunity for Traders
- Mar, 02 Looming BoE Dominates Pound Sentiment As Markets Brace For More QE
- Mar, 01 Euro Shows Signs Of Diverging From Equity Markets
- Feb, 26 Yen Support Could Fade With Continued Strength in Equities
- Feb, 24 Canadian Dollar Support May Be Fleeting As Rising Inventories Threaten Oil Prices
- Feb, 23 British Pound Remains Heavy As Declining Yield Expectations and Risk Aversion Weigh
- Feb, 22 Euro Remains Tied To Risk Despite Divergence on Greek Woes
- Feb, 11 Yen Support Fades As Optimism Rises On Bailout For Greece
- Feb, 09 Pound Rebounds As Risk Appetite Dictates Price Action
- Feb, 08 Euro Re-establishes Risk Correlation on Sovereign Credit Concerns
- Feb, 04 Yen Soars As Risk Trends Dominate Price Direction
- Feb, 02 Pound Losses Slowed As Risk Appetite Rises, BoE Could Set New Course
- Feb, 01 Euro Finds Limited Support From Risk Appetite, As Correlation Weakens
The GBP/USD is under pressure today as we are seeing across the board dollar support on the back of a pull back in risk appetite despite the pair seeing its correlation with equities start to diminish in favor of interest rate expectations. However, as we are seeing today it still has considerable influence and currently explains 29% of price action.
GBP/USD
The GBP/USD is under pressure today as we are seeing across the board dollar support on the back of a pull back in risk appetite despite the pair seeing its correlation with equities start to diminish in favor of interest rate expectations. However, as we are seeing today it still has considerable influence and currently explains 29% of price action. Previous sterling support was fueled by the prospect that the BoE will end its asset purchase program. Monetary policy has started to grow in importance to determining direction from 8% to 124%.
BoE Interest Rate Expectations
Interest rate expectations for the BoE have started to ease again following a failed attempt to reach back above 90 bps for the third time in the past month. Overnight index swaps have remained below the level since the central bank surprised markets by adding £50 billion to their asset purchase program. It may take confirmation from policy makers that they intend to cease their efforts before we see markets start pricing in additional rate hikes. Tomorrow’s release of the BoE minutes will provide some insight into the MPC’s thought process which could alter the outlook for momentary policy. Retail sales and 3Q GDP round out the week and the forecasts for growth in consumption and the overall economy by 2.8% and 0.2% respectively could increase the chances of future tightening. A quarterly expansion in GDP would be the first in a year and a half and signal the end of the country’s worst recession since WWII. Therefore, we could see sterling support return as improving fundamentals eliminate the need for further stimulus.
FOMC Interest Rate Expectations
Fed funds futures are currently pricing in a 6.7% chance of a rate hike by the end of the year which is the highest in over a month. Additionally, markets also raised the likelihood of a 75 bps rise in the target rate in January to 1.6% but simultaneously lowered the overall chances of tightening from 30.4% to 21.8%. The FOMC may remain on hold longer than previously expected which could increase the chances of an aggressive move once they decide to tighten. The Fed beige book report due out tomorrow could alter the yield outlook and should be monitored for signs that growth is emerging across all regions. The report will provide a look at the conditions of the 12 Federal Reserve districts and whether broad growth is being realized or is being concentrated in a few regions.
Risk
Stocks have fallen back to trend line support as an unexpected decline in U.S. housing starts overshadowed strong earnings reports from Apple and Caterpillar. The lack of new construction doesn’t bode well for the labor market which has continues to shed jobs. The construction sector accounted for 64,000 of the 263,000 jobs that the economy lost last month. Third quarter earnings season will bring more results with several blue chip names reporting including Boeing Eli Lilly, McDonald’s, Wells Fargo and Microsoft. If the theme of strong earnings continues then risk appetite could return and provide sterling support.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
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