Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

Forex: British Pound To Face Range-Bound Price Action, Euro Weighed By Debt Concerns

By , Currency Analyst
11 April 2011 13:30 GMT

Talking Points

  • British Pound: U.K. Banking Commission Urges ‘Retail Ring-Fence’
  • Euro: Germany Sees Risk For More Greek Aid
  • U.S. Dollar: Benefits From Risk Aversion

The British Pound struggled to hold its ground during the overnight trade as the Independent Commission on Banking held a cautious outlook for the largest financial institutions in the U.K., and the GBP/USD may face range-bound price action over the near-term as it pares the previous week’s advance to 1.6427. The commission encouraged the biggest banks in Britain to increase its capital while separating its consumer banking units into separately-capitalized subsidiaries, and went onto say that “a retail ring-fence” will help to strengthen the retail banking operation while protecting depositors. As the European banking system remains fragile, the central bank may look to maintain the expansion in monetary policy throughout the first-half of the year, and the British Pound may continue to retrace the advance carried over from the previous month as interest rate expectations falter.

Nevertheless, Bank of England hawk Andrew Sentance said monetary policy will need to be gradually adjusted given the heightening risk for inflation, and went onto say that the central bank may have to consider a series of rates hikes as the rise in price growth dampens the purchasing power for households and businesses. Mr. Sentance noted that it may become harder to normalize monetary policy unless the MPC decides to act now, and continued to see scope for a 50bp rate hike as the central bank forecasts inflation to reach 5 percent this year. With the consumer price index on tap for tomorrow, a fastest pace of price growth is likely to encourage bets for higher borrowing costs in the U.K., but the GBP/USD may trend sideways in the coming days as the BoE is scheduled to release its policy meeting minutes on April 20.

The Euro slipped to 1.4420 on Monday as fears surrounding the sovereign debt crisis weighed on market sentiment, and the single-currency may continue to depreciate throughout the North American trade as the risk for contagion intensifies. German Finance Minister Wolfgang Schaeuble said Greece may additional aid following a meeting in Hungary, and pledged to “closely” monitor the situation as the EU sees a risk that the government may ultimately need to restructure its debt. As the European debt crisis comes back into focus, concerns surrounding Portugal’s bailout is likely to drag on the single-currency, and the EUR/USD may threaten the upward trend from earlier this year as investor confidence falters. In turn, the European Central Bank may look to delay its exit strategy further, and the Governing Council could be forced to support the real economy throughout the first-half of the year as the region copes with an uneven recovery.

Currency traders flooded into the U.S. dollar as they scaled back their appetite for risk, and the greenback should continue to appreciate throughout the North American trade as risk sentiment dictates price action in the foreign exchange market. As the economic docket remains fairly light for the remainder of the day, the rise in risk aversion should continue to gather pace, but things may turn around during the next 12 hours of trading as equity futures foreshadow a higher open for the U.S. market.

Will the EUR/USD Maintain The Upward Trend From Earlier This Year? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

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

FX Upcoming

Currency

GMT

EST

Release

Expected

Prior

No Scheduled Releases

Currency

GMT

Release

Expected

Actual

Comments

CNY

02:00

Imports YoY% MAR

20.6%

27.3%

Ekes out surplus after deficit in Feb.

CNY

02:00

Exports YoY% MAR

23.4%

35.8%

CNY

02:00

Trade Balance (USD) MAR

-3.35B

0.14B

NZD

22:45

Card Spending Retail (MoM) MAR

--

1.3%

Rebounds from contraction in Feb.

NZD

22:45

Card Spending Total (MoM) MAR

--

0.5%

JPY

23:50

Machine Orders (MoM) FEB

-0.9%

-2.3%

1st contraction since Nov. ‘10

JPY

23:50

Machine Orders (YoY) FEB

9.0%

7.6%

Continues to climb after contracting in Dec. ‘10

EUR

06:45

French Industrial Production (MoM) FEB

0.5%

0.4%

Slips back from 2-month high

EUR

06:45

French Industrial Production (YoY) FEB

5.2%

5.6%

Resumes climb after slipping sharply in Jan.

EUR

06:45

French Manufacturing Production (MoM) FEB

0.7%

0.7%

Speed drops by half from Jan.

EUR

06:45

French Manufacturing Production (Yoy) FEB

6.4%

7.2%

Continues to climb

EUR

08:00

Italian Industrial Production (MoM) FEB

1.7%

1.4%

Rebounds from contraction

EUR

08:00

Italian Industrial Production (YoY) FEB w.d.a

3.4%

2.3%

Climbs after slipping sharply in Jan.

EUR

08:00

Italian Industrial Production (YoY) FEB n.s.a

3.9%

2.3%

Continues to slow

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

11 April 2011 13:30 GMT