Simon Smith

Waiting on Greece

Dollar yen moving higher this morning, as Greece waits for the Eurozone Finance Minister to offer their judgement on the reform proposals put to them overnight. This reflects on some generalised dollar strength being seen, which has also pushed the Aussie below the 0.7750 level. This is all happening ahead of Yellen's testimony later today, where markets are going to be very sensitive to any change in tone or further indication on the timing of the first rate hike from the Fed.

Simon Smith

Dollar reversal

The minutes of the January FOMC meeting appears to show a committee looking to keep rates lower for longer. This took the market by surprise and put the dollar on the back-foot. This came in the wake of the latest labour market data, which also showed better data for earnings. The other thing that came from the minutes is that the Fed want to be convinced that the pace of activity is sustainable before raising rates. The final factor, less mentioned but cannot be ignored, is the fact that many ...

Simon Smith

UK CPI softer on headline rate

UK inflation falls to 0.3% YoY (from 0.5%), with core rate rising to 1.4% (from 1.3%). The fall in the headline rate was more than expected, Headline fall more than expected, but core rate in line. Sterling little changed. 1.5355. Not surprisingly, it was transport costs (fuel) that was pulling the headline rate lower. Food, together with Alcohol and tobacco were also contributing to the fall, with clothing and footwear offsetting. The fact that the headline rate was higher at the moment ...

Simon Smith

Sterling higher on Inflation Report

Sterling has pushed above 1.53 after the Inflation Report. The press conference has seen this move enhanced, with the Bank of England Governor underlining the view that the drop in headline inflation seen will be temporary, with upward revisions to growth vs. the November report also being seen. EURGBP has also moved below the 0.74 level for the first time since February 2008.

Simon Smith

Euro spiking higher but this is not the end

Having started off on a weaker footing, the single currency has spiked higher on the back of comments coming over the wires regarding the possibility of the EU allowing an extension to the bailout program. The fact that the euro had initially softened reflected the extent of the divide between Greece and Germany, not least because they cannot even agree on what the issue is. For this reason, the scope for a resolution this week looks distant and even though trading the euro on the basis of the ...

Simon Smith

Strong US payrolls leading to surging dollar

Strong employment report from the US resulting in a surging dollar, with headline rising 257k and the prior 2 months rising 147k. The rate was steady at 6.6%. USDJPY surging up above 118, with EURUSD down to 1.1360, down 1 big figure from levels prior to the release. The other factor helping the dollar was the strength in earnings, up 2.2% in YoY terms with upward revision to the prior month (from 1.7% to 1.9%).

Simon Smith

Another “surprise” rate cut

Depending who you read, the rate cut from the RBA overnight was expected or unexpected. The difference of opinion depends whether you take the polls of bank economists (where around 25% were looking for cut), vs. what was priced into markets. After the RBNZ change in tone from last week, the chances had certainly increased, with the 2Y bond in Australia trading below 2%, in other words 50bp below the cash rate. In normal times with no expectations of rate move, this would trade some 10-20bp ...

Simon Smith

Post-Fed central bank outlooks

On balance, the FOMC statement last night was taken as slightly hawkish given the upward assessments of both the economy and labour market in their respective descriptions. But the fall in market based measures of inflation expectations was noted in the statement as being substantial. Indeed, the Fed's favoured measure is now at levels last seen Feb-Mar 2009, which is when most central bank started QE with a vengeance. The shift in the RNBZ overnight cannot be overlooked, given that they moved ...

Simon Smith

Splicing the Fed

Markets are in a holding pattern ahead of the Fed meeting this evening, where once again the focus will be on the statement. Recall last time, the wording was changed, removing the commitment to keep rates low for a 'considerable' period, but then going on to say that it can be 'patient' towards normalizing monetary policy and that this was 'consistent with its previous statement'. This left markets somewhat confused and the dollar volatile and they may have this in mind when drafting this ...

Simon Smith

UK economy slowing but not stalling

The latest GDP data for Q4 in the UK showed that the economy grew at 0.5%, just a touch short of expectations for a 0.6% gain. This represents a slowdown from the pace seen in the previous quarter of 0.7% QoQ. Sterling has softened a touch, but not drastically so. EURGBP at 0.75000.

Simon Smith

Another Greek drama

The single currency has continued to recover during the morning, despite headlines that are coming out of Greece in the wake of the weekend election. EURUSD is above the 1.1250, from an overnight low just below 1.11. This probably has a lot to do with positioning, with lots of euro short positions already in place in the wake of the QE announcement from the ECB last week. We have a meeting of Eurozone finance ministers later today, so more headlines are likely to be seen. But what is clear is ...

Simon Smith

Euro breakdown

The single currency is wallowing in the aftermath of yesterday's ECB decision, having now broken below the 1.12 level, with the next key focus on the bigger picture charts being the September 2003 low of 1.0765.

Simon Smith

ECB rates unchanged… more to come

The ECB has left all key rates unchanged and left us waiting for more at the 13:30 GMT press conference, where they say further measures will be announced later.

Simon Smith

Bank of Canada cuts rates

The Bank of Canada has cut rates in what is a surprise move to markets which has sent the CAD tumbling by 1.6% vs the USD. The central bank states that the magnitude of the oil price shock has created exceptional uncertainty, with this being combined with a weaker economic outlook for the first half of the year. Weaker oil and gas investment playing a role here, together with a negative impact on public finances.

Simon Smith

UK BoE minutes show dissenters falling into line

GBP down 55 pips to 1.5095 after minutes show 9-0 vote for steady rates. We've seen two members voting for higher rates since the summer of last year, so it was about time that we saw them come into line with the majority of the committee. Move largely linked to oil price and risk of more persistent decline inflation measures. We also saw the unemployment rate down to 5.8% (from 6.0%). Sterling has sustained the initial move lower. EURGBP at 0.7672.

Simon Smith

EUR holding above 1.16 after German ZEW data

EUR above 1.16 ahead of and after latest ZEW data from Germany, showing headline at 22.4 (from 10.0). Expectations balance rising for 3rd consecutive month to 48.4 (from 34.9). Sterling also feeling a little more assured, above 1.5150 on cable from the 1.5070 area overnight.