British Pound Extends Rebound From 1.48, Euro Rally Tapers Off

Talking Points
•    Japanese Yen: Weighed by Risk Appetite
•    Pound: 4Q GDP Tops Initial Forecast
•    Euro: German Import Prices Expand at Faster Pace
•    U.S. Dollar: Consumer Confidence, S&P/Case-Shiller Home Prices on Tap

British Pound Extends Rebound From 1.48, Euro Rally Tapers Off

Chancellor of the Exchequer Alistair Darling said that he expects to see a sustainable recovery in the U.K. during his testimony in front of the Parliament Treasury Committee, and noted that the depreciation in the Sterling has “helped” to aid the rebound in economic activity.

Nevertheless, Bank of England Chief Economist Spencer Dale said private holdings of U.K. government debt will be “unaffected”  by the central bank’s quantitative easing operations during a speech in Guildford, England and said that the extraordinary measures will be “fully reversed” once the central bank begins to normalize monetary policy. Meanwhile, the final 4Q GDP reading showed economic activity expanded 0.4% during the last three-months of 2009 amid an initial forecast for a 0.3% rise in the growth rate, which was led by an upward revision in services and construction. At the same time, the current account deficit unexpectedly narrowed to GBP 1.7B from a revised GBP 5.9B in the third-quarter, while the Nationwide home price index increased 0.7% in March, which well exceeded expectations for a 0.4% expansion.

The Euro continued to retrace the decline from earlier this month and advanced to a high of 1.3536 during the overnight trade as investors raised their appetite for risk. However, the short-term rally appears to be tapering off ahead of the 20-Day SMA at 1.3579, and the single-currency is likely to maintain its recent range going into the following month as European policy makers hold a cautious outlook for the euro-region. Meanwhile, the economic docket showed import prices in Germany jumped 1.0% in February to top forecasts for a 0.4%, while the annualized rate increased 2.6% from the previous year after expanding 1.4% in the previous month, and the bigger-than-expected rise in inflation could lead the European Central Bank to drop their dovish outlook for future policy as the Governing Council maintains their one and only mandate to ensure price stability.

The greenback continued to lose ground against the major currencies, while the USD/JPY halted the two-day decline and rose to a high of 92.71, and the reserve currency could face increased selling pressures going into the North American trade as equity futures foreshadow a higher open for the U.S. market. Nevertheless, consumer confidence in the world’s largest economy is expected to improve in March as market participants forecast the Conference Board’s survey to increase to 51.0 from 46.0 in the previous month, and the rebound in household sentiment could encourage an enhanced outlook for future growth as private-sector spending remains one of the leading drivers of growth. In addition, the S&P/Case-Shiller home price index is expected to contract 0.25% in January following the 0.32% expansion during the last month of 2009, while former Fed Chairman Paul Volker is scheduled to speak on Financial Reform in Washington D.C. at 16:00 GMT.


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Forex Weekly Trading Forecast - 03.29.10

To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com