FX Headlines: Dollar Continues to Outerperform As Risk Aversion Regains Its Footing
• Egypt’s Army Backs Mubarak – Wall Street Journal
•Asia Markets Mixed; Egypt – Wall Street Journal
•Egyptian Army Moves to Defuse Crisis – Financial Times
•Egyptians Vow Biggest Demonstrations After Mubarak Stays – Bloomberg
•U.K. Output Prices Increase Twice as Much as Forecast – Bloomberg
GBPUSD: U.K. producer prices in January rose an annualized 4.8 percent after climbing a revised 4.1 percent the month amid economists’ expectations of 4.4 percent. Meanwhile, producer prices advanced 1.0 percent on the month. Taking a look at the breakdown of the report, core output prices increased 0.7 percent, while input prices for all manufactured products added 1.7 percent. Going forward, producer prices may remain at elevated levels as food and crude oil prices continue their northern journey. However, it is worth noting that the today’s increases in prices amongst producers suggest that inflation could continue to rise further. With policy makers Andrew Sentence and Martin Weale pushing for a rate increase, further gains in consumer prices could lead the split amongst the committee to widen further.
Despite the upbeat report, the British pound was under pressure during the overnight session of Friday’s trade as risk aversion continues to regain its footing amid renewed fears of the sovereign debt crisis. Taking a look at 10 year yields amongst troubled European economies, Greece and Portugal’s yield are up 7 and 2 basis points to 11.19and 7.04 percent respectively. As the GBPUSD breaches below 1.60, currency traders should not rule out a test of 1.58 in the medium term.
Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast
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