Pound eyeballs inflation

Currencies Direct January 14th 2014 - 2 minute read

The Greenback’s performance on Monday was not in
keeping of a safe haven currency, that is if the recent stumble in
sentiment is genuine. The Standard
& Poor’s
500 dropped the most in two months to 1.1 per cent
while the Dow Jones industrial average suffered its largest slide
since early October. Given how rare it is to see equities stumble,
the move was not overlooked by risk watchers and yet, the
suggestions of stimulus-supported benchmarks slipping despite
‘favourable’ data (poor NFPs this past Friday) didn’t seem to run
deep enough to leverage the dollar’s safe haven status.

The pound fell across the board Monday. The
currency’s losses ranged from a 0.6 per cent slide against the
weakened US dollar to a hefty 1.8 per cent plunge versus the yen.
There is certainly an element of the pound’s position in the risk
spectrum that contributed to its retreat, but the poor performance
against the greenback and more risk-leaning currencies suggests
there was something more pervasive at work. The indicator on the
docket was the little-followed Lloyds Employment Confidence survey
for December – which actually approached a five-year high. The
material development was the extended retreat in Gilt yields. While
the UK government bonds hold a safe-haven status of their own, it
is materially more restrained than Treasuries; and more
importantly, the pound has been driven to considerable heights on
rate expectations. As the 10-year nears 2.8 per cent, traders are
holding their breath for the round of inflation data due today –
headed by the December CPI.

Finally, the single European currency weakened
against most of its counterparts through the week’s opening
campaign. The calendar was light and European equity indexes fair
remarkably well given the general sentiment behind global financial
markets. For those weighing relative monetary policy, European
market rates have softened recently and certainly curbed their
advance. Ahead, we have
President Trichet speaking on the Troika’s performance.

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