The British Pound takes center stage this morning as it continues to weaken against the USD and the EUR ahead of the release of the Bank of England’s minutes from the last meeting. Adding to the pressure on the GBP was a rumor making the rounds that S & P are considering a downgrade of the UK’s sovereign debt rating.
While this rumor proved to be false, the GBP has not seen much of a rebound. In fact, the British Pound has been the weakest European currency since the beginning of the year. As Great Britain continues to fall further into recession, there are calls being made by Bank of England members to increase the amount of easing and weaken the pound even further.
Adding to the pressure on the GBP is the fact that Mark Carney, the current governor of the Bank of Canada takes over as the head of the Bank of England later this year. No one is sure what type of impact this will have.
As I am writing this, the BOE minutes have been released and it shows that the Bank of England governors voted 9-0 to leave interest rates unchanged, but the vote on further quantitative easing showed 3 members voted for more easing. Governor King, Fisher and Miles were in favor of increasing the QE by GBP 25 billion. The reaction in the FX markets has been swift, with the British Pound crashing through support levels of 1.5410, 1.5380 and 1.5360. The GBP is currently at 1.5340-45. Adding to the GBP woes, was labor data showing a higher ILO unemployment rate moving from 7.7% to 7.8%. While this selloff is surely overdone, I would not expect too much of a rebound.
Key support for the GBP is now at 1.5325.
The EUR had a relatively quiet overnight trading session, breaking above the 1.3400 level as the markets seem to like the positive numbers released yesterday from the German ZEW Survey. Even a comment by the French budget minister that said achieving the 3% deficit goal would be “extraordinarily difficult” have not hurt the single currency. Italian industrial data from December showed a contraction of 15.3% over the last 12 months, but the EUR remains firm ahead of the North American trading day.
Look for support of the EUR at the 1.3410 and 1.3390 levels, while resistance appears at 1.3440 and 1.3460. A break of the 1.3460 area will target a run towards 1.3510.
It seems like traders either “love” or “hate” the EUR and this week it seems the “lovers” are outnumbering the “haters”. The overall 1.3200 – 1.3550 range remains intact and there isn’t much on the horizon to break through those levels.
USD/JPY and USD/CHF are nearing overnight lows as these currencies, the JPY and the CHF are being purchased against the GBP. The USD isn’t necessarily weaker, it’s just these currencies are stronger.
USD/CAD continues to show an upward bias, testing resistance at 1.0125. A break there will target 1.0145. Support for USD/CAD is at 1.0105.
Further reading: “Currency Wars” can be placed on the shelf alongside of “Fiscal Cliff”
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