Sterling jumps sharply in European after report showed inflation in January doubled BoE's target while BoE King's letter to Chancellor was seen as more hawkish than expected. UK CPI jumped to 4.0% yoy in January as expected, doubling BoE's target of 2%.
In an open letter to Chancellor os the Exchequer Obsborne, BoE Governor King noted the surge in inflation and reiterated that it's temporary, due to tax hike and higher commodity costs. King also warned that attempting to bring inflation back to the target quickly risks generating undesirable volatility in output and would increase the chances of undershooting the target in the medium term. However, King also emphasized there is a great deal of uncertainty about the medium-term outlook for inflation and there are real differences of view within the Committee.
USD/JPY soared to as high as 83.91 earlier today on support from treasury yield. Two year note yield reached an eight month high of 0.88% and the spread with Japanese bond yield was at 0.64%, widest since last June. US empire manufacturing index rose more than expected to 15.4 in February. Import rise rose 1.5% mom in January. Nevertheless, retail sales missed expectation and rose 0.3% in January, with ex-auto sales up 0.3%.
EU finance ministers agreed on the volume of the permanent lending facility of the European Stability Mechanism (ESM), which will be set up from 2013. The effective lending capacity will be raised from the current EUR 250b out of EUR 440 in the European Financial Stability Facility (EFSF) to level of EUR 500b, that is, a double. The details are expected to be discussed and agreed at the two summits in March.
Data from Eurozone were disappointing. German Q4 GDP rose 0.3% qoq versus expectation of 0.5% and less than half of prior quarter's 0.7%. Eurozone Q4 GDP rose 0.3%, also missed expectation of 0.4%. German ZEW economic sentiment rose marginally higher to 15.7 only, versus expectation of 20. The indicator increased for the fourth consecutive month but the run might be ending. Nevertheless, the current condition component rose to all time high of 85.2. The indicator still suggest growth in Germany to pick up in the months ahead.
BoJ left rates unchanged at 0-0.1% as widely expected. The bank also upgraded economic outlook for the first time in nine months. As the bank noted in the statement, Japan's economy is gradually emerging from the current deceleration phase. This was an improvement from previous references to a pausing recovering. Meanwhile, the bank also noted that exports and production showed signs of resuming an uptrend as global growth started increasing again. Meanwhile, BoJ also pledged to maintain its loose monetary policy stance for the country to overcome deflation and return to a sustainable growth path with price stability,
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RBA's minutes for the February largely echoed what Governor Glenn Stevens said before the parliament last Friday. Policymakers were comfortable to leave the cash rate unchanged at 4.75%. While floods that had occurred in December and January in eastern Australia would have strong impact on the economy in the near-term, it would not affect the central bank's monetary policy which focuses on the medium-term outlook for the economy. Dependent of economic indicators, we currently retain our view that the RBA will resume tightening in the second quarter. More in RBA Appears Comfortable With Current Stance
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5986; (P) 1.6032; (R1) 1.6082; More.
GBP/USD's strong rebound and break of 1.6136 minor resistance today suggests that choppy retreat from 1.6276 is finished. Intraday bias is back to the upside for 1.6276 first. Break will confirm that whole rise from 1.5343 has resumed and should target 61.8% projection of 1.4230 to 1.6298 from 1.5343 at 1.6621 next. On the downside, below 1.5962 will bring another to continue the correction from 1.6276. But near term outlook remains bullish as long as 1.5750 support holds and recent rise from 1.5343 is expected to resume sooner or later.
In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5343 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, break of 1.4230 support will be the first signal of down trend resumption and will turn focus to 1.3503 low for confirmation.
Economic Indicators Update
|02:00||CNY||CPI Y/Y Jan||4.90%||5.30%||4.60%|
|02:00||CNY||PPI Y/Y Jan||6.60%||6.40%||5.90%|
|03:37||JPY||BoJ Rate Decision||0.10%||0.10%||0.10%|
|07:00||EUR||German GDP Q/Q Q4 P||0.30%||0.50%||0.70%||0.30%|
|09:30||GBP||DCLG UK House Prices Y/Y Dec||3.80%||2.80%||4.00%|
|09:30||GBP||CPI M/M Jan||0.10%||0.10%||1.00%|
|09:30||GBP||CPI Y/Y Jan||4.00%||4.00%||3.70%|
|09:30||GBP||Core CPI Y/Y Jan||3.00%||3.10%||2.90%|
|09:30||GBP||RPI M/M Jan||0.30%||0.20%||0.70%|
|09:30||GBP||RPI Y/Y Jan||5.10%||5.10%||4.80%|
|10:00||EUR||Eurozone GDP Q/Q Q4 P||0.30%||0.40%||0.30%|
|10:00||EUR||Eurozone Trade Balance (EUR) Dec||-2.3B||-0.2B||-1.9B|
|10:00||EUR||Eurozone ZEW Survey (Economic Sentiment) Feb||29.5||28.5||25.4|
|10:00||EUR||German ZEW Survey (Economic Sentiment) Feb||15.7||20||15.4|
|10:00||EUR||German ZEW Survey (Current Situation) Feb||85.2||83||82.8|
|13:30||USD||Empire State Manufacturing Feb||15.4||15||11.92|
|13:30||USD||Import Price Index M/M Jan||1.50%||0.80%||1.10%|
|13:30||USD||Advance Retail Sales Jan||0.30%||0.50%||0.60%|
|13:30||USD||Retail Sales Less Autos Jan||0.30%||0.50%||0.50%|
|14:00||USD||Net Long-term TIC Flows Dec||91.3B||$85.1B|
|15:00||USD||Business Inventories Dec||0.70%||0.20%|
|15:00||USD||NAHB Housing Market Index Feb||17||16|