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10 Mar 2015

Euro slumps again as confidence in QE plan and Greek reforms worsens

United States Dollar: The dollar remains strong this morning as expectations for future Fed monetary policy increasingly diverges from that of other major central banks around the world. GBP/USD has found support just above 1.50, having fallen to a low of 1.5033 yesterday morning. As the day went on, cable pushed slowly higher yesterday, eventually topping out at 1.51. BoE Governor Carney was speaking yesterday before the House of Lords economic affairs committee and reiterated that the fall in the rate of inflation should only be temporary. He also said that it would be “extremely foolish” to lower interest rates now and to chase the fall in the price of oil, although he did cover himself by going on to say that the bank remain vigilant to a more sustained period of low inflation. His forthrightness on leaving rates on hold and ruling out extra stimulus provided a bit of support to the pound. UK Manufacturing Production is due this morning at 9:30. Forecasts are for 0.2% growth month on month in February. There isn’t a lot of data due from the States this afternoon but that’s not to say it won’t be volatile.

We expect a range today in the GBP/USD rate of 1.5000 to 1.5120

Euro: EUR/USD is in a world of pain as sentiment towards the ECB’s recently adopted quantitative easing programme turns negative and confidence in Greece’s austerity reform promises worsens. The currency pair is continuing to fall this morning despite some fairly upbeat comments from ECB President Draghi who is speaking at Frankfurt University this morning. He’s been saying that a slowdown in growth has been reversed and that an EU recovery should gradually broaden. It’s an ominous sign for the euro that the sell-off is continuing this morning on the back of these fairly positive comments and demonstrates how sour sentiment towards the single currency is at the moment. It means that GBP/EUR is pushing ever higher, through new seven year highs – it opens this morning at 1.4170.

We expect a range today in the GBP/EUR rate of 1.4100 to 1.4240

Aussie and Kiwi Dollars: AUD/USD and NZD/USD have continued to fall over the last 24 hours, weighed by the stronger US dollar as well as some negative domestic news. An article in the Australian Financial Review suggested that the RBA should intervene to sell the aussie dollar and it caught some attention. Headlines in NZ meanwhile were dominated by news that the police are investigating a threat to poison baby formula, a product that forms a big part of the NZ dairy export sector. Focus now turns to the RBNZ monetary policy announcement tonight.

We expect a range today in the GBP/AUD rate of 1.9630 to 1.9825

We expect a range today in the GBP/NZD rate of 2.0640 to 2.0850

Data Releases

AUD: MI Inflation Expectations, Employment Change, Unemployment Rate

EUR: No data

GBP: Manufacturing Production m/m, Industrial Production m/m, NIESR GDP Estimate

NZD: Official Cash Rate, RBNZ Rate Statement, RBNZ Monetary Policy Statement, RBNZ Press Conference

USD: No data

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