EUR, AUD Consolidates After Extending Losses in Asia
The dollar continued its gains in very early Asia with EUR-USD hitting a fresh 2 1/2 month low in early Tokyo trading of 1.2558. Similarly, AUD-USD fell to 0.6333 before bouncing and Kiwi dropped to 0.5061. All three currencies bounced and the session was mostly typified by consolidation with dealings very quiet. There was little reaction to the huge new borrowing requests from GM & Chrysler, now at $39 bln. The Eastern European concerns lingered and continued to fuel negative sentiment in the banking sector which sent Asian stock markets broadly lower. Oil and gold were little changed, with oil remaining under $35 after heavy losses Tuesday and gold trading at $967.70 after the surge on Tuesday. USD-JPY, after being capped at 92.71 in late NY, traded a range of 92.09-92.50 in Asia with Tokyo dealers reporting few flows. Cable consolidated above 1.4200 resisting the fresh pressure seen on the EUR earlier in the session.
British Pound Holds Up as UK CPI Remains Well Above 2% Target, BOE Minutes Could Impact Trade on Wednesday
The British pound was actually one of the stronger currencies in the forex markets on Tuesday, slipping only against the greenback, as the latest inflation data suggests that the Bank of England may be hesitant to slash rates to zero in the near-term. Though UK CPI fell 0.7 percent in January, the annualized pace remained well above the BOE's 2 percent target at 3.0 percent, down from 3.1 percent in December. The BOE has indicated that they expect inflation to fall much further this year, but the direction of interest rate expectations for the UK may hinge upon the release of the BOE's meeting minutes on Wednesday at 4:30 ET. During the February meeting, the BOE's Monetary Policy Committee (MPC) slashed the Bank Rate by 50 basis points to yet another record low of 1.00 percent, as expected. However, the British pound subsequently rallied as the MPC suggested that they may not cut rates again on March 5. Since then, though, BOE Governor Mervyn King's comments have signaled otherwise and if the MPC's comments and outlooks signal that the central bank will reduce the Bank Rate further, the British pound could pull back.