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Pound Wobbles on Tory Troubles

Last updated 3/19/2010 5:55 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOE Sentance - "aome risk of douple dip recession" weighs on the pound
• Swissie strength relentless as EUR/CHF nears multi decade lows
• Both Asia and Europe up mildly on last day of the week
• Oli at $82/bbl
• Gold at $1123/oz.

Overnight Eco

• JPY All Industries Activity 3.8% vs 1.6%
• NZD Visitor Arrivals -1.9% vs. -2.3%
• NZD Credit Card Spending 1.1% vs. 2.7%
• EUR German PPI 0.0% vs. 0.1%

Event Risk on Tap

• CAD CPI expected at 0.4%
• CAD Retail Sales expected at 0.6%

Price Action

• USD/JPY trades in very narrow range around 90.50
• AUD/USD holds above .9200
• GBP/USD pressured by Sentance comments to 1.5150
• EUR/USD 1.3600 gives way as Greek situtaion remains unresolved

On the last night of trading for the week, with the eco calendar barren of any data the euro slipped below the 1.3600 figure, plagued by the continuing concerns over the Greek debt crisis situation while pound dropped to 1.5150 in the aftermath of  remarks by BOE member Andrew Sentence. In an interview with CNBC Mr. Sentence said he saw encouraging signs of a pick up in the UK and the world economy, but warned that there was still a risk that a financial shock could derail the recovery.

"You have to recognise there is some risk of a double dip, but that's not the central forecast. You'd have to see some factors bring that about: we've seen big shocks in the international economy over the last couple of years, so you couldn't rule out some new shocks emerging on the financial front which could set back the economy,“ he stated. The market instantly seized on his “double dip” comments ignoring any qualifications and sent cable tumbling through the 1.5150 barrier.  

Ironically enough, the latest batch of positive eco data from UK may have also been responsible for pound weakness. The latest UK polling  data from Yougov shows that Torries have lost their momentum and are unable to make further gains on Labour precisely because economic conditions appear to have slightly improved. This latest development make the possibility of the a hung Parliament more likely resulting in  more pressure on the pound.  

In Europe meanwhile, the EUR/USD remained listless in quiet trade but was pushed below the 1.3600 handle as concerns over the Greek fiscal crisis issue remained unresolved.  The Swissie maintained bid with EUR/CHF trading near all time lows as traders flocked to the safety of the franc. As we wrote earlier, “the currency market continues to reward both Switzerland and Canada for essentially running a “clean book” of business with respect to their trade and fiscal affairs. If sovereign debt issues remain a major concern for investors in 2010, the current trends in EUR/CHF and USD/CAD are likely to continue despite the best efforts of the Swiss and Canadian officials to slow down the rally in the Swiss franc and the Canadian dollar. “    

Canada is the only event risk on the North American calendar today with Retail Sales the key focus. We expect retail sales to better than forecast given the large rise in wholesale sales earlier in the month. USD/CAD however had been climbing steadily throughout the night after the pair tested the 1.01 level. Yesterday's rumors over a Fed discount rate hike have been responsible for the short covering rally but the loonie could make another run at parity next week if Canadian data continues to surprise to the upside putting more pressure on BOC to abandon its ultra easy monetary policy.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.