Yesterday saw the pound trying its best to regain some ground against the dollar and the euro following better than expected UK PMI service data. However, any cause for celebration was short lived. Despite an all-time high on the Dow Jones stock exchange, GBP/USD dropped a cent during the afternoon trading session.
Euro zone retail sales figures for the month of January also surpassed expectations muting any further gains in GBP/EUR.
The downtrend that has suffocated the pound since the start of the year would appear to still be on the cards and recent Euro and US geo-political events seem to be a minor hiatus in an otherwise one way street.
Economist’s thoughts that the pound is undervalued may have substance but unless the UK’s economy can back up these claims, the pound will continue to be the worst of a bad bunch.
Later in the week, the Bank of England’s interest rate decision will once again highlight the potential for additional QE following last month’s surprise 3-6 vote for further stimulus within the MPC. The UK economy’s reaction to the first and indeed, additional instalments of the asset purchasing program have been questionable at best. Would further additions to the QE program have the effect that the Bank of England desire or would this merely de-value the pound further?
Compounding the Bank of England’s problems, they now appear to be making a hasty retreat from the suggestion that negative interest rates could be considered.
This morning euro zone GDP figures are due. If any unexpected increase is published, the dizzying heights of 1.16 will seem a distant memory. A Cypriot bailout still offers hope for some euro weakness however euro finance ministers adjourned their meeting with no apparent conclusion on the matter.
The inconclusive Italian elections could also dampen demand for the euro. Pier Luigi Bersani will be addressing senior members of his Democratic Party this morning to outline plans to form the next government. Bersani currently holds the majority of the seats in the lower house, but with the Five Star Movement party still refusing to join Bersani or Berlusconi in a coalition, uncertainty still lingers on how the electoral deadlock will be broken.
10.00am – EUR – Gross Domestic Product (QoQ) (Q4): Expected to show a further contraction of 0.6%.
13.15pm – USD – ADP Employment Change (Feb): Expected to decrease to 170,000.
15.00pm – CAD – BoC Interest Rate Decision: Expected to remain at 1%.
15.00pm – CAD – BoC Rate Statement.
19.00pm – USD – Fed’s Beige Book.