The release of the recent Fed's meeting minutes did not come away of what has been seen of pledges of keeping its quantitive easing policy for spurring growth and demand for jobs expecting the recent rising of oil and commodities prices to have benign effect on the inflation which is expected to be well-contained over the long term by the Fed unable to cause a major change of its stimulating policy for supporting the growth which has not stored durable confidence in the housing and labor markets until now but the Fed's upgrading of its growth expectation of this year from 3% to 3.6% to 3.4% to 3.9% came to the market as a new reason to have more risks pushing the US stocks up.
While the British pound came under pressure again after King's comments which brought down in the interest rate outlook in UK which has been up by the release of Jan UK CPI which reached 4% moving the cable up above 1.61 before it has been dragged down by these comments which have shown a greater than expected appreciation of the growth down risks which faces the UK economy which has shrunk in 2010 Q4 GDP by .5% quarterly showing emerging down side risks to face the growth in the case of hiking the interest rate by the required pace to anchor the inflation as it is to cool the economy further tackling the investments which are needed for spurring growth. The cable has fallen below 1.60 after this hit which has followed the higher than expected release of UK jobless claimant rising by 2.4k while it was expected to decrease by 3.3k as a reflection of the current struggling economy in UK which is facing emerging stagflation risks at the current high prices capping the BOE ability to take a clear tightening or easing direction currently and God willing, 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 which has been dampen by the recent weak economic releases from UK triggering these recent comments by King and the inflation quarterly report release which has shown to the market that it is required now from the UK economy to come over this phase by finding the sluggish demand to produce at these current high prices which face it as the action of tightening at the required rate for containing these prices should have strong negative impact on growth which is required strongly too.
The Cable is trading currently at 1.6090 after finding support at 1.5985 as the greenback came under pressure after the Fed's upgrading of its growth expectation of this year from 3% to 3.6% to 3.4% to 3.9% increasing the market risk appetite but it is expected to face resistance again at 1.6182 and then 1.6275 which has been reached previously 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 main resistance at the top formed 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 while its next expected supporting level is at 1.5962 and it can be followed by 1.582 and the breaking of it can lead to testing 1.5747 again.
The single currency could get over 1.35 trading currently at 1.357 versus the greenback after having a higher bottom at 1.346 above 1.3427 following the Fed's upgrading of the US growth which pushed the US stocks up again after red session profit taking session helping Dow to make another new year high at 12303 and putting pressure on the greenback across the broad in the benefits of the higher yielding currencies and it is expected to face again at 1.364 then 1.374 and breaking it can open the way for the recent formed main top at 1.386.
The single currency came under pressure this week as the market sentiment has been contained by seen weakness in the germane industrial pace by the end of last year as the falling of December germane industrial productions by 1.5% while they were expected to be up by .2% from decreasing by .6% in November and also the dovish falling of Germany factory orders by 3.4% monthly in December from gaining 5.4% in November while the market was waiting for shrinking by 1.4% to show easing of the demand of capital good from Germany which affected negatively on its 2010 Q4 GDP preliminary reading to be lower than the market expectation of .5% at just .4% and these dovish figure has come with the release of February germane economic sentiment ZEW which was expected to be 20 from 15.4 in January shocking the market by getting back again to 15.7 to weigh negatively on the single currency which was depressed by the European financial ministers announcing about their eagerness for moving up their ability for lending to 500 billion euros from the beginning of 2013 which show to the markets that their current 250b euros sharing package with the IMF is not enough to save the expected requests of borrowing and also by increased probability of the needs of rescue WestLB bank in Germany and but the pressure has eased by its announcement of selling four parts of it having new structure to get over its accumulating loses by 2015.
God willing, it is important to wait today for the talking of the MPC member Andrew sentence which is not expected to be soft following the recent rising of UK CPI of January to 4% as the main supporter of tightening among the MPC member which can support the British pound and also we have the release of US CPI of January which is expected to be .2% m/m and 1.6% y/y broadly while the core figure excluding the food and energy is expected to be .1% m/m as the same as December following the rising of Jan broad figure of US PPI by .8% monthly and the core excluding the food and energy by .5% while it was foreseen to be just .2% as the same of December showing growing prices over the producing and wholesales levels and we have also from US Philadelphia Fed Manufacturing Index of February which is expected to be 21 from 19.3 in January and US leading indicators index of January which is expected to be up monthly by .4% from 1% in December and that's beside Bernanke's testifying later in the US session.
FX Market Strategist
Walid Salah El Din