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04 Feb 2015
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Euro slides as ECB revoke waiver on Greek government debt being used as collateral

United States Dollar: UK services PMI for January printed stronger than expected yesterday morning. The purchasing managers’ index rose to 57.2 in January, up from a 17 month low of 55.8 in December and beating forecasts for 56.6. GBP/USD made steady gains on the back of the release and traded to a high of 1.5248 yesterday. Come the late afternoon session it started to wobble a bit though. The ECB announced that it was revoking a waiver that allowed banks to use Greek government debt as collateral for loans and the EUR/USD promptly broke down. The central bank went on to say the “suspension is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review” but that “this decision does not bear consequences for the counterparty status of Greek financial institutions in monetary policy operations”. Nonetheless, it spooked investors a little and the dollar – as a safe haven – firmed up across the board. GBP/USD fell back to 1.5170 overnight and it opens this morning at 1.52. In other news yesterday, US ADP Non-Farm Employment Change printed weaker than expected at 213k vs. expectations for 224k. ISM Non-Manufacturing PMI came in flat at 56.7. Meanwhile, oil prices dropped again after recovering early this week/late last week, adding to the mix. The Bank of England announces its monetary policy decision today at midday. Interest rates and QE is firmly expected to remain on hold, especially so given the change in voting displayed in the last meeting minutes which showed there was now unanimous support amongst members to keep rates unchanged. Given the recent surprise announcements by other central banks around the world and the continued downward pressure on global inflation there may well be a further change in stance by the Old Lady.

We expect a range today in the GBP/USD rate of 1.5130 to 1.5290

Euro: After recovering earlier in the week, EUR/USD snapped lower again yesterday following the news that the ECB was revoking a waiver on Greek government debt being used as collateral. The ECB are putting more and more pressure on Greece at the moment to come to terms with lenders over its bailout programme. EUR/USD started the day yesterday at 1.1466 and slowly fell throughout the day. It eventually dropped to a low of 1.1303 overnight. The run of positive European PMIs released yesterday morning were largely shrugged off and so were stronger than expected European retail sales released later in the day on Wednesday. EUR/USD has recovered a bit early this morning and it trades at 1.1375 currently. It remains on the back foot vs. the pound however and GBP/EUR opens in London at 1.3395.

We expect a range today in the GBP/EUR rate of 1.3345 to 1.3440

Aussie and Kiwi Dollars: AUD/USD and NZD/USD have both traded fairly steady ranges over the last 24 hours and open this morning at .7795 and .7380 respectively. Both pairs have been largely unaffected by the ECB’s latest decision as well as the PBOC’s announcement overnight that it was cutting the bank reserve ratio imposed on major banks from 20% to 19.5%, signalling a shift towards aggressive monetary policy easing. In other news, Australian retail sales printed a little weaker than expected at 0.2% vs. forecats for 0.3%. Later on tonight the RBA Monetary Policy Statement is due, at which point we’ll hear more details on the central bank’s surprise decision to cut interest rates earlier in the week.

We expect a range today in the GBP/AUD rate of 1.9450 to 1.9620

We expect a range today in the GBP/NZD rate of 2.0500 to 2.0740

Data Releases

AUD: AIG Construction Index, RBA Monetary Policy Statement

EUR: ECB Economic Bulletin, Retail PMI, EU Economic Forecasts

GBP: Official Bank Rate, Asset Purchase Facility, MPC Rate Statement

NZD: No data

USD: Challenger Job Cuts y/y, Trade Balance, Unemployment Claims, Prelim Nonfarm Productivity q/q, Prelim Unit Labour Costs q/q

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