Sterling suffered heavily this morning vs both the USD and the EUR. The Daily Telegraph ran a story highlighting the budgetary woes of the UK government and emphasising that Pimco’s declaration that it will be a seller of gilts will coincide with the end of the BoE’s QE program and increase the pressure on the UK debt market. EUR/GBP pushed above the 0.9000 level, cable temporarily touched below the GBP 1.6000 mark. With the dire deficit outlook soured further by the fear that May’s election could produce a hung parliament, sterling could remain on the back foot at least through the spring.
In spite of sterling’s fall, there was clear evidence of risk appetite in Asian currencies. The KRW hit a 15 mth high vs the USD as optimism from yesterday’s generally stronger Asian PMI releases encouraging optimism about the Asian economic outlook, though profit taking has followed. In Australia, Nov new home sales rose +0.3% m/m after the previous month’s slump, though AUD/USD remains reluctant to push above 0.9160 while the NZD/USD has not yet convincingly broken the 0.7360 area.
German unemployment data was better than expected at -3K, though this can be linked to statistical changes. Eurozone CPI at +0.9% y/y in Dec was buoyed by energy price rises though with underlying inflation still benign this does not alter the view that ECB inflation will remain unchanged for many months yet.
This afternoon, US factory orders, pending homes sales and vehicle sales are due.