Sterling In Focus

The broad markets remained rather tentative on Tuesday as investors continue to show weariness ahead of tomorrow’s Central Bank policy meetings via the ECB and BoE. The USD did pick up some ground against the GBP, but continued ranging against the EUR. The AUD slipped further off of its highs and this took place as Gold retraced off of its record pace. The precious metal is trading at 1533.00 USD an ounce as of this morning’s writing. Even though Factory Orders data from the States yesterday had a better outcome than anticipated with a result of 3.0%, Wall Street barely paid notice and turned in a relatively flat performance.

The biggest move per the currencies among the benchmarks on Tuesday came from the GBP which reacted to a rather disappointing Manufacturing PMI number by falling in value. The mark of 54.6 was well below the expectation of 57.0 and continued to highlight that the U.K. economy is finding a difficult path on the road to recovery. It should be noted however that CBI Realized Sales did in fact come in better than expected with a reading of 21 compared to the estimate of 14. The U.K. will get some rather interesting impetus in the coming days as Glencore is listed on the FTSE. The commodities giant will have a dual IPO in London and Hong Kong. Many investors will be keen to see how the Initial Public Offering translates into the market taking into consideration the way physical commodity prices have been trading the past six months. The Nationwide HPI, Construction PMI, and Net Lending to Individuals data will all be posted today. The Sterling is at the weaker part of a very strong range against the USD and with the Bank of England up on deck tomorrow, trading will be more than interesting today as investors position themselves.

The EUR was able to maintain its pace against the USD on Tuesday as whispers began to emerge that Portugal will accept the mandates from the IMF and ECB in order to receive its bailout package. The Portugal government still has to approve the measures, but the threat of chaos developing for the time being from the nation was tempered with this news. PPI data from Europe met expectations yesterday with a result of 0.7%. Today the Final Services PMI and Retail Sales will come from the continent, but investors will be geared towards tomorrow’s ECB policy statement and the press conference from ECB President Trichet. Given that inflation data met the forecasts yesterday, it could be that Trichet shows a softer tone towards ‘inflation’ tomorrow. No doubt he will say that the ECB will remain vigilant, but it is possible that he may begin to suggest that no further interest rates are planned midterm. The Portugal bailout is likely to be debated today and will find a sounding board at the ECB press conference tomorrow. The bailout is reportedly around 78 billion EUR, no small sum for sure. Investors will have to ask themselves if Portugal will find themselves under the same shadows that are plaguing Greece this time next year, in others words within the midst of conversations that mention debt restructuring.

Jobless data will begin from the U.S. today with the ADP Non Farm Employment Change numbers and a result of 200k is the estimate. The ISM Non-Manufacturing PMI numbers will be presented also. Wall Street has been relatively tame after gaining last week. The prospects of lackluster jobless numbers may be weighing on the market until proven otherwise. The USD has been beaten about the past couple of weeks from all corners. The Greenback was able to find some foundation yesterday, but it will take more than one stable day to prove to investors that it is about to stage a comeback.

The JPY has been in a consolidated mode the past couple of weeks while inching up in value against the USD slightly. The JPY will continue to find an interested crowd of investors and traders monitoring it. Long term the feeling is that the JPY should weaken against the Greenback, however short term the Japanese currency shows no signs of giving up its strength.

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