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Pound Directionless As Monetary Policy Remains Uncertain
Tuesday, 09 March 2010 21:07 GMT
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- 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
- Jan, 29 Canadian Dollar Pressured As Crude Falls For Fourth Day
- Jan, 28 USD/JPY Weighed By Lower U.S. Interest Rate Expectations
- Jan, 27 New Zealand Dollar Taking Cue From Yield Expectations with Rate Decision Looming
- Jan, 26 Pound Taking Its Cue From Equity Markets As BoE Likely To Remain On Hold
- Jan, 25 Euro Finds Support As Stocks Regain Footing
The GBP/USD appears directionless as its main drivers of price action have continued to lose influence. Risk trends hold the strongest relationship with a 33% correlation, but recent divergence has seen the level of explanation slide from 41% a month ago. The support that risky assets have generated hasn’t translated into sterling gains as the prospect of more quantitative easing from the BoE continues to weigh. U.K. interest rate expectations have seen their correlation fade from 14% to 1% in the past month as the central bank has trailed its counterparts in bringing an end to liquidity providing efforts. Therefore, we could see a continuation of the current trend until the release of the BoE minutes next week which will provide insight into future monetary policy.
BoE Interest Rate Expectations
A Fitch rating analyst called the British government’s plan to cut their deficit in half over two years as too slow and increases the country’s risk to shocks. Overnight index swaps falling to 47 bps demonstrates the markets concerns and dimming expectations for future tightening. Tomorrow’s NIESR GDP estimate for February could help raise the outlook for yields if growth is expected to build upon January’s 0.4% improvement. Industrial production for January will also cross the wires with forecasts for a 0.3% increase in output. However, based on the decline in exports that was seen in the January trade balance report, both indicators could disappoint validating policy maker’s cautious stance. U.K. interest rate expectations will most likely remain relatively unchanged until the release of the BoE’s minutes next week as markets are still looking for clues as to whether the central bank will add or bring an end to their QE efforts. To discuss this and trading ideas join the GBP/USD forum.
FOMC Interest Rate Expectations
Fed funds futures continue to point toward rates remaining on hold for an extended period of time with a zero percent chance for a hike at the FOMC’s upcoming meeting. Looking out to August, markets are still leaning toward the central bank leaving monetary policy unchanged with a 28.0% chance of a rate hike. Advance retail sales for February has the most potential to alter expectations, the early forecast for a 0.1% decline in consumption may only serve to push out the horizon for future tightening.
Risk
Stock markets are struggling to hold onto earlier gains as there appears to be little conviction on the anniversary of the 2009 bottom. Traders continue to try and determine if the monumental appreciation over the past year has outpaced fundamentals. Despite beating expectations, last Friday’s labor report showed a job loss of 36,000. A weak labor market will continue to weigh on domestic demand with retail sales in February forecasted to have declined by 0.2%. Therefore, we could see consolidation and a continuation of the inclining wedge formation until then. Discuss this and other fundamental data join the Economics Forum.
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