Currency Focus
USD - There is talk of dollar selling by central banks as well as diversification of reserves by the Chinese central bank, which are hardly new topics. The US economic data is moving in the right direction, so the dollar should not weaken much further.
GBP - Now the odds now probably move away from a further rate hike in February as the Monetary Policy Committee will want to wait and see how inflation spans out this month. There is still a tightening bias implied to policy and a move to 5.50 pct rates is probably in the frame by the end of the first quarter. As i thought the odds will come in at 7-2, as usuall Blanchflower and Lomax will join to oppose the rates, but surprisingly Bean and Tucker too joined to oppose the rate and this is bad for GBP.
The GDP figures were slightly more than the market had anticipated and reflected our own view that industrial production had shrunk slightly but this was offset by a robust services sector. With GDP above consensus, there is probably still a 65 percent chance the MPC will do one further hike to 5.5 percent, but 5.75 percent looks highly unlikely on this evidence. It does suggest that the case for further rate hikes is not as solid as the market seemed to believe.
JPY - The Japanese currency remains weak versus its counterparts, particularly the dollar, euro and sterling as a result of markets’ continuing to discount additional unchanged decisions from the Bank of Japan in the coming months. The BoJ’s gradual approach and data dependency will likely prevent the central bank from lifting its refi rate above the current 0.25-basis point in the first half of this year. As a result, we continue to look further gains in the carry trades, such as EUR/JPY, GBP/JPY and to a lesser extent USD/JPY.
AUD - AUD tumbled against USD after the softer inflation data - easing the need for policy tightening from the Reserve Bank of Australia. Consumer price inflation fell to 3.3% on an annual basis in Q4, declining further than estimates for a decline to 3.6% from 3.9% in the previous year. Meanwhile, on a quarterly basis CPI dipped by 0.1% falling short of calls for a rise of 0.2% versus 0.9% in the prior quarter.
GBP - Now the odds now probably move away from a further rate hike in February as the Monetary Policy Committee will want to wait and see how inflation spans out this month. There is still a tightening bias implied to policy and a move to 5.50 pct rates is probably in the frame by the end of the first quarter. As i thought the odds will come in at 7-2, as usuall Blanchflower and Lomax will join to oppose the rates, but surprisingly Bean and Tucker too joined to oppose the rate and this is bad for GBP.
The GDP figures were slightly more than the market had anticipated and reflected our own view that industrial production had shrunk slightly but this was offset by a robust services sector. With GDP above consensus, there is probably still a 65 percent chance the MPC will do one further hike to 5.5 percent, but 5.75 percent looks highly unlikely on this evidence. It does suggest that the case for further rate hikes is not as solid as the market seemed to believe.
JPY - The Japanese currency remains weak versus its counterparts, particularly the dollar, euro and sterling as a result of markets’ continuing to discount additional unchanged decisions from the Bank of Japan in the coming months. The BoJ’s gradual approach and data dependency will likely prevent the central bank from lifting its refi rate above the current 0.25-basis point in the first half of this year. As a result, we continue to look further gains in the carry trades, such as EUR/JPY, GBP/JPY and to a lesser extent USD/JPY.
AUD - AUD tumbled against USD after the softer inflation data - easing the need for policy tightening from the Reserve Bank of Australia. Consumer price inflation fell to 3.3% on an annual basis in Q4, declining further than estimates for a decline to 3.6% from 3.9% in the previous year. Meanwhile, on a quarterly basis CPI dipped by 0.1% falling short of calls for a rise of 0.2% versus 0.9% in the prior quarter.
posted by Naveen Pantera at 8:05 PM
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