British Pound in Focus with Jobless Claims, Inflation Report on Tap (Euro Open)

Key Overnight Developments

• Australian Consumer Confidence Fell Most in 4 Months, Says Westpac
• Euro, British Pound Consolidate Losses Against US Dollar


Critical Levels



The Euro and the British Pound consolidated in well-defined ranges in overnight trading after prices tumbled in New York hours as expectations of a grand US scheme to rid financial markets of toxic assets were disappointed when Treasury Secretary Geithner offered conspicuously little clarity on the plan’s details. This sent stock prices tumbling and boosted safe-haven currencies, with the both US Dollar and Japanese Yen registering gains.


Asia Session Highlights



Australian Consumer Confidence fell -4.6% in February, the largest drop since October, according to Westpac Banking Corp. Consumers’ expectations of the state of the economy in the next 12 months dropped -36.6% from a year ago. The negative result comes as rising unemployment weighs on both current and expected disposable incomes, discouraging spending. The situation has scope to deteriorate further: business sentiment set a new record low in January as the global economic slowdown eroded companies’ overseas sales. Indeed, last week the trade surplus narrowed more than economists expected in December as iron ore shipments plummeted 26% while coal demand fell 5.06%. Lackluster business confidence will see firms cut production capacity and lay off workers, pushing the jobless rate higher and adding to downward pressure on consumption and thereby the broad economy. While some relief may be had from a second government stimulus plan, it remains to be seen if the measure passes gathers enough votes to pass in the Australian parliament.


Euro Session: What to Expect



UK data headlines the economic calendar in European trading hours, with Jobless Claims the first major report to cross the wires. The ranks of newly unemployed Britons seeking government assistance are expected to grow by 89.0k in January, the largest increase in nearly 18 years. Persistently dour conditions on the labor market have pushed consumer confidence to a record low while expectations of future savings slipped to the lowest since 1996. Private consumption is the largest contributing factor to overall economic growth and continually sluggish performance in this area threatens to deepen the already severe UK recession.

With growth concerns at the forefront, the Bank of England’s Quarterly Inflation Report takes on particular significance considering the bank was expected to stop cutting interest rates after the latest reduction took borrowing costs to 1%. Overnight index swaps currently show the market pricing in another 50 basis points in monetary stimulus in the coming. Further, a recent speech by Governor Mervyn King saw the BOE chief hint at a move to quantitative easing in the near term, with the central bank buying corporate bonds and commercial paper to boost access to lending. Traders will be carefully dissecting the report for signs of where policy is going from here and any meaningful deviation from expectations may bring significant volatility for the British Pound.

Related Articles: British Pound Tumbles Ahead of Bank of England’s Quarterly Inflation Report


To contact Ilya regarding this or other articles he has authored, please email him at ispivak at dailyfx dot com.