The Pound fell to as low as 1.3865 after the U.K. employment report showed jobless claims rose by a recod high 138,400.
T[B]alking Points
• Japanese Yen: BoJ Leaves Rate Unchanged Increase Debt Purchases
• Pound: Jobless Claims Rise Most On Record
• Euro: Trichet forecast Growth By 2010
• US Dollar: FOMC and CPI On Tap
[U]
British Pound Heavy As Jobless Claims Rise by Record Amount, BoE Unanimous On Quantitative Easing.[/U][/B]
The Pound fell to as low as 1.3865 after the U.K. employment report showed jobless claims rose by a recod high 138,400. The increasing unemployment rolls sent the claimant count rate to 4.3% which was the highest since 1999. Meanwhile, the release of the Bank of England minutes showed that they voted 9-0 to cut their benchmark rate by 0.50% at their last policy meeting. The central bank was also unanimous in deciding to print £75 billion in order to buy government bonds. Traders had started to front run the numbers which led to Sterling dropping over 50 bps before the release, but has found support after the initial bearish reaction.
The MPC said the scale of the purchases needs to target CPI as it still see it at risk for undershooting their 2% target. This was reinforced by average earnings falling to their lowest level since 1991. Policy makers will take its cue from inflation as to when it will end its efforts as they review the appropriate scale of purchases on a monthly basis. The BoE also forecasted that growth in the first quarter could be a dismal as the fourth quarter of 2008 which contracted by 1.5%. The 20-Day SMA continues to provide staunch resistance, evidenced by yesterday’s failed attempt to break above and the dour growth outlook may lead sterling to continue trading heavy. However, if the dismal employment report fails to sink the pound further then we could see another attempt at the technical level and a break above could lead to an extended rally higher.
The Euro reached as high as 1.3068 during Asian trading on the back of comments from ECB President Trichet, which forecasted a recovery for the Euro-Zone by 2010. However, the expectations of dour fundamental data from the U.K. and a gloomy outlook from the FOMC started to fuel risk aversion which led to the Euro falling briefly back below 1.3000 before regaining support. If growth concerns mount then we could see further weakness in the single currency and until we see a break above the 100-Day SMA then downside risk exists.
TheBoJ left their benchmark rate unchangedat 0.10% as expected but announced that it will increase its government bond purchases to 1.8 trillion Yen. Meanwhile, Prime Minister Taro Aso is preparing the country’s third stimulus package as the economy is shrinking by double digits and continues to be hurt by the drop in global demand. The Yen was little changed on the news as markets had started pricing in the increased buying after the SNB launched their own efforts. The USD/JPY continues to consolidate above the 98.00 price level as the 200-DAY SMA looms at 99.78.
The consumer price report and FOMC rate decision due out today will present significant event risk today and could spark volatility. Inflation is expected to have remained unchanged at 0.0% in February which may put an end to deflation concerns and return the focus to the upside risks. Fears are growing that as the government pumps the system full of money that it will give rise to future price pressures. Therefore, the report will become an area of focus for the FOMC as determines future interest rate policy. Today, the central bank is expected to leave its benchmark rate unchanged at 0.25% as it has little room for further easing. Until growth returns or inflationary pressure increase, we may se interest rates remain at low levels over the medium term. However, expectations are that the MPC will announce that they will increase their efforts to stimulate the economy that could include buying more treasuries or mortgages. The central bank has been debating whether to increase money supply or to target specific credit markets. Regardless Chairman Ben Bernanke is expected to lower growth expectations for the economy and project that unemployment will rise to as high as 10%. If traders chose to focus on the dour outlook then we could see a return of risk aversion and bullish dollar sentiment. However, if the future efforts of the committee are well received then a continuation of rising risk appetite and a weaker greenback is possible.
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[I]To discuss this report contact John Rivera Currency Analyst: [/I][I][email protected][/I][I][/I]
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