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01 Feb 2015

Attention turns to RBA announcement as rate cut looms

United States Dollar: GBP/USD fell steadily throughout the day on Friday, bottoming out at 1.4992. There wasn’t much by way of top tier UK economic data released on the day although weaker than expected ‘net lending to individuals’ didn’t help the pound’s cause particularly. Traders were more concerned with the release of Advance GDP due from the States that afternoon. At 2.6% in the fourth quarter the number disappointed, coming in lower than the 3% expected. Despite this, the dollar continued to strengthen vs. the pound and the sell-off in cable intensified following the release of Chicago PMI (a purchasing managers’ index) which printed at 59.4 vs. 57.7. There was a lot of interest to buy GBP/USD under the 1.5 big figure and it recovered by the end of the day to finish the week at 1.5075. This week’s headlines will likely continue to be dominated by Grexit and QE concerns. February will also be a key month as the new Greek administration meets with EU officials to try and come to some agreement with the IMF, ECB and European Commission over relaxing the current terms of its €240B bailout. In terms of data we look to UK PMIs and the BoE rate announcement, although it’s a forgone conclusion that interest rates will remain on hold on Thursday. The big data from the US will be Non-Farm Payrolls. Although employment numbers from the US have picked up during the last year, the global inflation issue might mean the expectation for a Fed rate hike this calendar year is brought in to question sooner rather than later. If this data disappoints on Friday it could see the latest dollar gains erased but there’s a long way to go between now and Friday.

We expect a range today in the GBP/USD rate of 1.4960 to 1.5150

Euro: EUR/USD trickled lower throughout the day on Friday, finishing the week at 1.1278. It wasn’t a good start for the single currency on Friday as European CPI Flash Estimate printed at -0.6% year on year vs. expectations for -0.5%. Throughout the day there were also political wranglings between Greece and the ECB et al. Greek finance minister said on Friday that his government would not negotiate with the Troika regarding Greece’s bailout conditions and said that he would rather speak directly with Eurozone leaders. However, PM Alexis Tsipras said that he was confident that an agreement could be reached to pay off its debts. Then, the ECB’s Erkki Liikanen said over the weekend that a deal to extend Greece’s bailout agreement must come before the end of February. I think we can expect more of the same of this kind of posturing over the week and beyond. Meanwhile, EUR/USD has recovered since early this morning and trades at 1.1335 currently.

We expect a range today in the GBP/EUR rate of 1.3190 to 1.3310

Aussie and Kiwi Dollars: Oil bounced higher on Friday by 8% and it’s supported the commodity currencies, to an extent. AUD/USD has recovered slowly since Friday morning and opens in London at .7785. NZD/USD has been flatter by comparison and trades at .7255. Weaker than expected Chinese Manufacturing PMI and a flat reading from the HSBC Final Manufacturing PMI hasn’t really hurt either currency. AUD/USD may well trade quietly throughout the day today as markets await the RBA monetary policy announcement. There are growing calls for a rate cut but it’s not fully priced in. Either way, we’re likely to see some volatility in AUD/USD tonight.

We expect a range today in the GBP/AUD rate of 1.8800 to 1.9650

We expect a range today in the GBP/NZD rate of 2.0580 to 2.0780

Data Releases

AUD: Building Approvals m/m, Trade Balance, Cash Rate, RBA Rate Statement

EUR: No data

GBP: Manufacturing PMI

NZD: ANZ Commodity Prices m/m

USD: Core PCE Price Index m/m, Personal Spending m/m, Personal Income m/m, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices

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