One might have expected that good
retail sales numbers, better GDP estimates and improving Purchasing Managers’
Indexes in European states and in the Eurozone as a whole would have checked
the fall of the Euro against the US dollar, and that similar improvements, and
positive rhetoric from the Bank of England and others, would have nurtured the
green shoot of a reversal of the downtrend in Cable (the GBP / US dollar pair)
that we have been watching here for a little while now (also see below).
Blowout US Non-Farm Payrolls figures last
Friday put an end to all that. Even in spite of weather Stateside that has been
so dire that government offices in Washington decided to open later on Friday,
and there was a suggestion on the newswires that the very payroll numbers
themselves would be delayed as a result, the increase in jobs that was reported
was way above the very best estimates that had been made beforehand.
This has placed the US Federal
Reserve way out in front what is effectively a three-horse race to the
normalisation of monetary policy, which is a polite way of talking about a rise
in core interest rates. And when it comes to Foreign Exchange, it is the search
for yield, influenced by differentials in interest rates, which most often drives
the market. The race analogy might not be the best one, because one of the
horses, the ECB, is not even in the running at present. In Britain, the
upcoming general election has now appeared fully on the radar, and this will
maintain uncertainty. Even when it is over, it can be predicted that a possible
referendum on continued British membership of the EU will take over as a potential
destabilising feature for Forex rates.
Sterling
resurgence: forget about it (for now at least)
The breakout from the down channel
that we have been watching in GBPUSD has not become a reversal to an
up-channel. The Non-Farm Payrolls in the US on Friday placed the final nail in
the coffin of that particular idea. The next possible scenario is that Cable
will settle into a range that is bounded to the downside by the nice round
number of 1.50 (The market just loves nice round numbers).
There is nothing fundamentally wrong
with the British economy, and this fact could be expected to militate against a
break below the psychologically important 1.50 level. On the other hand, as
already noted above, upcoming political events, in the absence of meaningful
action (as opposed to words) on the part of the Bank of England, could leave
the pair moribund, at best.
No comments:
Post a Comment