As expected yesterday saw Mervyn King deliver a gloomy quarterly inflation report cutting the growth and inflation outlook as expected. The bank revealed that it is now expecting zero growth this year after forecasting a 0.7% rise in GDP only three months ago. It also cut its 2013 forecast to 1.7% growth revised from 2.1%. Despite the gloomy report sterling did strengthen after King stated the bank will use asset purchases as its central stimulus tool because interest rate cuts are counterproductive. After these comments we saw the pound make gains against a basket of currencies.
GBPEUR opened near the low of 1.2578 but was propelled to a 5 day high of 1.2688 at the same time as Mervyn King was speaking and was assisted by disappointing Industrial production figures from Germany.
GBPUSD reacted similarly, climbing rapidly to a find a session high of 1.5675 from the low of 1.5574 GDP made the same gains against all major pairs.
With little data out today we expect major currency pairs to be supported by risk appetite but remain range bound
EURUSD opened at the high of 1.2401 but fell steadily through the course of the day to touch a low 1.2327 as ratings agency DBRS announced rating downgrades for Italy and Spain.. The pair should see decent support around yesterday’s low, while 1.2440/50 remains key area of resistance.
German Industrial production figures YoY for June came in at -0.3% against the 0.3% consensus and the 10 year bond auction found yields pushing up to 1.42% from 1.31% – a clear indication of increased risk sentiment towards the economy’s future. As a benchmark, the US also auctioned 10 year notes at yields of 1.68%
Italian Prime Minister Mario Monti and his Spanish counterpart Mariano Rajoy have begun a new offensive against decisions on Eurozone funding by German Chancellor Angela Merkel, pressuring her to agree to a European shield against the high borrowing costs which are crippling Madrid and Rome.
New Zealand published labour figures from late last night to show unemployment improved marginally from 5.23% to 5.2% but employment saw a big increase reaching 14.0K from -28.3K in the previous month.
Japanese Machinery Order figures for June were up massively MoM from -14.8% to 5.6% although consensus had pitched this at 10.9%. The national bank this morning maintained interest rates at 0.1%.
Key figures from China this morning YoY for July indicated the Consumer Price Index had fallen from 2.2% to 1.8%, exceeding the 1.7% consensus. Producer Price Index however fell more significantly to -2.9% from -2.1% where -2.5% was expected.
Australian unemployment rate for July was down by 0.1% on the 5.3% previous and consensus but employment change went up from -28.3K to 14.0K where only 10.0K was expected.
The Scandies largely outperformed yesterday helped by the turn in risk appetite.