The developments in Egypt could rise up containing the market sentiment with a new constitutional well-engineered speech from Mubarak expected to be his last one after passing his authorities to the vice president as the constitution can allow. The speech may not reach most of the protestors but that's it which means that the situation is still open not wide open but open which means that there is still some confusion and unrest in Altahrir Square which may need another step from the Egyptian army to grantee the revolution requests and the steps of the vice president to achieve the required reforms and the transition of Authorities and the modifications of the constitution after the role of the president has ended by asking of them under the pressure of the Egyptian revolution.
The US Equities markets have been quite looking for what's new to come from Egypt taking a safe side buying the greenback again to appreciate across the broad while the Asian stocks indexes are still under pressure from the unexpected Chinese decision of hiking the yearly lending rate by 25 basis points to 6.06% from 5.81% for curbing the inflation accumulating pressure at the current high oil and commodities prices which can lower the demand outlook of them and also the Australian dollar and New Zealand Dollar too which is trading below .76 versus the greenback currently as the nearest commodities markets to china.
The oil prices are still around 100$ a barrel supporting the gold to keep its recent gains also as a safe haven of the money value versus the higher inflation outlook to rebound from 1306$ underpinned by the concerns about the geopolitical situation in the middle east worrying about the oil supplies from the Arabian rich countries of oil through the Suez channel to be traded currently above 1360$ trying to get over 1380$ again after it was under pressure because of the increased optimism of having better growth rates in US this year can make the investing in the greenback rewarding with tame inflation pressure can help the Fed to keep its easing borrowing plans unchanged as it has released in its economic assessment by the end of last month giving just reference to the rising of the commodities prices just as BOJ which is fighting deflation has done until now betting on its inability to move up the inflation over the long term in US as it was clear in Bernanke's last talking.
After the single could not stand again above 1.37, it has eased back heading to 1.3505 which was its recent low versus the greenback which has been formed after recovery of the investors' risk appetite coming with rising of with rising of the treasuries yields and the increased demand for borrowing while the US economy is looking better in the recent months despite the struggling of its labor market as we have seen by the end of last week the release of US Jan non-farm payroll adding just 36k while the market was waiting for 150k jobs to be added with declining of the unemployment rate to 9% from 9.4% while the market was waiting for rising to 9.6% but since the strong release of January ISM Manufacturing index which jumped to 60.8 while the market was waiting for 58.2 from 58.5 in December, the confidence in the US economy is getting momentum adding gains to its dividends value driving the treasuries yields by expected improving of the business spending trust this year in US can move up its growth rates.
While the cable came under pressure from the BOE decision of keeping both of the interest rate and its buying bonds unchanged again disappointing the market speculations of having a tightening action from the MPC which have increased recently by the release of UK CPI index reaching 3.7% yearly and the previous MPC meeting minutes which have shown stronger than expected appreciation of the inflation upside risks by Mr. Martin Weale giving his vote with sentence for calling for hiking the interest rate by .25 from to be 6 to 2 to 1 decision of keeping the interest rate unchanged at .5% and its buying bonds plan unchanged at 200b Stg instead of 7 to 1 to 1 in their earlier meeting as Possen was having the same view of favoring increasing of the buying bonds plan but it looks that this appreciation of inflation was not enough again as the concerns about growth is still strongly existing the falling of UK Q4 GDP into the negative territory at -.5% quarterly showing emerging of the stagflation risks can cap the MPC from hiking the interest rate by the required pace to anchor the inflation fearing of accumulating of the down side risks which can face the growth further by tackling the investments which are needed for spurring the economy. So, it looks that the only available option to the BOE currently is to let the pound appreciate for containing the inflation helping the market trust in it. The Cable is still trying hardly to stand above 1.60 after easing back from 1.6275 which has been reached last week with the bullish release of UK Service PMI of January rising above 50 again into the expansion territory at 54.5 above the market expectations of 53.5 from 49.7 in December but it could not even get the formed resistance at 1.6296 which has been reached in the beginning of last November when the greenback was under pressure from the Fed's decision to add another 600b$ in another step of its QE policy for stimulating the economic growth in US.
FX Market Strategist
Walid Salah El Din