[B]Talking Points
• Australian Dollar: Producer Prices Rise by Record Amount
• Japanese Yen: Service Sector Weakens On Consumer Spending
• Euro: Settles Above 1.5800
• Pound: Fails To Remain Above 2.000 Despite BoE Bailout Plan
• US Dollar: No data on tap[/B]
The Pound broke the 2.000 price level during the Asian trading session, despite Rightmove reporting a decline of 0.1% in house prices due to a lack of credit. Sterling Bulls shrugged off the news as details emerged that the BoE plans to swap 50 billion pounds of government bonds for mortgage backed securities. However, the cable’s momentum was thwarted by the confirmation that RBS was considering a rights issue expected to raise £10 billion. The move was necessitated by Britain’s second largest bank’s tier 1 ratio falling significantly below the European average. The news in combination with the bailout plan spooked traders and raised concerns regarding the extent of the credit crisis, which saw the Pound falter below 1.9850.
The USDJPY has come under pressure on profit taking pushing the pair towards 103.50, after reaching as high as 104.67 last week on increased risk appetite. The Yen is finding support despite a decline in the Tertiary index of 1.7% in February. The gauge which measures household spending on services fell as rising inflation has reduced consumer purchasing power and weighed on their confidence. However, risk appetite remains strong and may see the pair find support at these levels.
Since falling as low as 1.5710 on Friday, the Euro has managed to climb back above 1.5850, despite the lack of any fundamental data. The expected increase in interest rate differential is providing support for the pair, with a 25 point cut anticipated at the next Fed meeting on April 30th. However, the recent hawkish rhetoric that has been coming from FOMC members Yellen, Fisher and Plosser has increased speculation that the central bank may end their current easing policy, which may spell an end to the Euro’s record run.
The EUR/USD may remain directionless over the next 48 hours as there isn’t any European or U.S data until tomorrow’s U.S. existing home sales. However, if momentum swings back towards the Dollar, 1.60 may be an insurmountable barrier.
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