United States Dollar: Cable managed to trade to a two-week high of 1.5717 yesterday, aided by a marginally weaker USD as investors sold the greenback on expectations that the European Central Bank may soon take firm action to cap lofty Italian and Spanish sovereign bond yields. The market will be looking towards UK CPI inflation numbers this morning, and a weaker than expected number could prompt calls for the Bank of England to inject further stimulus into the faltering UK economy. That being said, the inflation number is not likely to have significant effect on the pound today given Bank of England Governor Mervyn King’s comments last week that reiterated the policy maker’s opposition to cutting interest rates, which at 0.5% are already at a record low level. The most important data point today will be US retail sales numbers for July and this release is likely to attract significant market attention on the back of the declines that have been witnessed in US consumer spending over the previous three months. In any case we do not expect the number to garner too much confidence on the state of the US economy and a weaker than expected print is likely to enhance QE expectations from the Fed and should be a USD-negative versus sterling. GBP/USD opens this morning at 1.5692.
We expect a range today in the GBP/USD rate of 1.5650 to 1.5750
Euro: The pound stumbled lower against the 17-nation euro yesterday as dovish comments from Bank of England Governor Mervyn King weighed down on the UK currency. King’s glum assessment of the British economy which appeared in a weekend news publication highlighted the effect that the European sovereign debt crisis is having on the UK economy, prompting traders to sell the UK currency and subsequently pushing GBP/EUR to a low of 1.2696. Indeed, the single currency had a better day against most of its major counterparts on Monday as an unwinding of short positions on the euro crosses, particularly EUR/AUD and EUR/NZD, pulled the common currency higher across the board. It is also fair to say that the shared currency was bolstered by market optimism related to recent pledges from the European Central Bank regarding measures aimed at safeguarding the future of the common currency and this helped ease pressure on Spanish 10-year borrowing costs on the day. Today’s European economic data might well be a stumbling block however as Q2 GDP for the 17-nation currency union looks set to confirm a bleak outlook for growth. The German ZEW survey is also likely to attract some market attention. We feel that we may see some further unwinding of shorts on the euro crosses today and on that basis the single currency should remain quite well supported. GBP/EUR opens this morning at 1.2686.
We expect a range today in the GBP/EUR rate of 1.2630 to 1.2740
Aussie and Kiwi Dollars: Commodity FX lagged yesterday, in particular an unwinding of heavily oversold positions in EUR/AUD and EUR/NZD saw both crosses make strong gains and subsequently exerted downward pressure on both AUD/USD and NZD/USD. A significant move lower in the price of copper was another factor behind the soft performance of the growth-positive currencies on Monday. The move higher in the EUR/antipodean pairs dragged GBP/AUD and GBP/NZD higher, trading to respective highs of 1.4943 and 1.9426 during early afternoon trading. The overnight session has seen some pretty subdued price action in the AUD and NZD and we could well see further gains for the pound against both of the higher yielding currencies today especially if economic data continues to paint a dark picture for the global growth story. GBP/AUD and GBP/NZD open this morning at 1.4910 and 1.9365 respectively.
We expect a range today in the GBP/AUD rate of 1.4840 to 1.5000
We expect a range today in the GBP/NZD rate of 1.9300 to 1.9450
AUD: Consumer Sentiment
EUR: Spanish CPI, Eurozone GDP, Eurozone Industrial Production, German ZEW
NZD: No data due
USD: Retail Sales, PPI
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