Will the pound continue to trade at the psychologically significant 2.00 level?
Trading as high as 2.0006 and as low as 1.9959 yesterday, many notable analysts are looking for signs of weakness as the cable comes off its largest rally against the greenback in five months last week.
[U][B]UK Headlines:[/B][/U]
Stemming from underlying risks present in the global marketplace, investors are seeking to invest funds in safer assets sending government bond yields lower.
-[I] “Global overview: Bond yields fall on safe haven buying”
[/I]Subscribe to read | Financial Times
[I] -Source: Financial Times[/I]
Hours before the start of Gordon Brown?s term as British Prime Minister, the United States Justice Department initiated a probe into Europe?s largest weapons contractor.
- [I]“U.S. launches corruption probe into Britain’s BAE”[/I]
UPDATE 6-U.S. launches corruption probe into Britain’s BAE | Reuters
[I]-Source: Reuters UK[/I]
The Bank of England is expressing their ongoing concern that salaries in London?s private sector are luring economists away from their central bank posts.
-[I] “Bank of England Struggles to Keep Staff Lured by Pay”[/I]
Bloomberg - Are you a robot?
[I]-Source: Bloomberg[/I]
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP/USD[/B]
Will the pound continue to trade at the psychologically significant 2.00 level?
Trading as high as 2.0006 and as low as 1.9959 yesterday, many notable analysts are looking for signs of weakness as the cable comes off its largest rally against the greenback in five months last week. Recently buoyed by expectations of continued
hawkish rhetoric from BoE Governor Mervyn King, due to testify before Parliament on June 28th , the sterling may come under pressure as over-zealous carry-traders lighten their exposure. Standing at 5.50 percent, Britain?s key borrowing rate (highest in G7) has been a primary recipient of yen funded carry trades. This yield focus has spurred growth in the pound, allowing it to reach a 15-year high verses the ultra-weak yen. The Bank for International Settlements commented on this trend warning of the dangers of a massive unwinding of carry-trades which is said to be estimated around 150 billion.
“The investors involved are often highly leveraged, and could be forced to unwind positions very quickly in response to changing market conditions. The sudden collapse of the dollar against the yen on October 1998 suggests that even large market segments can be affected by a sudden unwinding of carry trade positions.”
[I][U]Equity Markets: [/U][/I][B]FTSE 100[/B]
Leading UK equities, pulled lower by BAE Systems (BA.L), shed 0.25 percent before ringing the bell at 6572.10. Spiraling towards its most profound decline in four years, Europe?s biggest weapons maker lost 9.9 percent as the U.S. Justice Department initiated a probe into the firm?s compliance with anti-corruption policies. The benchmark FTSE 100 has declined 2.8 percent since June 15th and is in its longest successive descent since November. Portfolio managers that monitor the index contend that London equities continue to trade at relatively inexpensive multiples and have been bolstered by strong currency value. Conversely, others note that pound value may support fund inflows in the short term, but will untimely inflate UK assets making them less attractive in the long term.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-year Long Gilt[/B]
Countering declining equity markets and U.S. subprime woes investors bid up prices on the UK long bond, sending gilt yields down 2bp to 5.47 percent (prices move inversely to yields). The macro-themed risk aversion saw global fixed-income yields tumble as investors fled risky assets and sought a safe haven in bonds. Government instruments in other major financial hubs with comparable maturates also saw a decline in yields with the 10-year Treasury dipping 4bp to 5.09 percent and the 10-year Bund falling 3bp to 4.62 percent. Looking ahead, interest-rate futures maintain their confidence of a looming increase in UK borrowing costs as the implied yield on the December contract was 6.25 percent, up from 6.19 percent this time last week.
