EUR/GBP Fundamental Analysis February 2, 2015 – Forecast

The EUR/GBP is flat today at 0.7512 remaining near its bottom level.  The pound climbed into positive territory against the dollar on after a brief dip when Britain reported economic growth that was weaker than forecast but still outstripped its euro zone peers.

The pound yesterday lost around 0.6 percent to 74.97 against the euro, which has bounced back from its losses after last week’s announcement by the European Central Bank of outright money-printing.  UK gross domestic product grew by 2.6 percent in 2014 as a whole, the Office for National Statistics said on Tuesday, up from 1.7 percent in 2013. That puts it in the running for the world’s fastest-growing major advanced economy last year.

The slowdown to 0.5 percent growth in the fourth quarter was bigger than expected, but the annual figure was still the strongest growth Britain has seen since 2007.

Sterling had also taken some heart on Monday from suggestions by BoE Monetary Policy Committee member Kristin Forbes that the bank might raise rates sooner than many people expect.

USD/CAD Fundamental Analysis February 2, 2015 – Forecast

The USD/CAD soared to its highest level to date, trading at 1.2647 up by 30 points as the US dollar continued to trade on a strong note ahead of today’s GDP print.  Declining oil prices continued to put pressure on the Canadian dollar, with West Texas Intermediate crude dipping close to $40 before recovering. But the real trigger was the Fed’s open market committee announcement Wednesday, which seemed to indicate the U.S. central bank was on track to raise interest rates in the spring, in line with its previous schedule.

The Bank of Canada has had one rate cut and many analysts are predicting another, which makes the Canadian dollar even less attractive by comparison with the U.S. dollar.

“As oil prices move lower, this only exacerbates the impact on the Canadian dollar due to the Bank of Canada’s increased likelihood to cut rates with falling oil,” said Rahim Madhavi,  an analyst at Knightsbridge Foreign Exchange in Toronto.

GBP/USD Fundamental Analysis February 2, 2015 – Forecast

The GBP/USD added 13 points to trade at 1.5079 after touching the 1.52 level earlier in the week. The pair declined after the Fed announcement.  Sterling inched up against the dollar on Friday, helped by a bounce in British consumer confidence, although gains are likely to prove temporary as UK bonds yields stay anchored near record lows.

British consumer morale jumped by more than expected in January to reach a five-month high. The survey’s headline index rose to +1 in January, matching the highs hit in mid-2014 and up from December’s nine-month low of -4. Economists polled by Reuters had expected a smaller rise to -2.

Sterling has also suffered in the past six months as investors have pushed back their bets on when the Bank of England will raise rates. The 10-year gilt yield dropped below 1.4 percent for the first time ever on Thursday, reflecting a view that rates in UK will stay lower for longer.

BoE Chief Economist Andrew Haldane on Wednesday reiterated the message that the BoE was in no rush to raise interest rates and that when hikes do come, they will be gradual, perhaps as little as a half percentage point rise each year.

EUR/USD Fundamental Analysis February 2, 2015 – Forecast

The EUR/USD gained 7 points to trade at 1.1324. A surging dollar is pummeling currencies around the globe amid efforts to boost economic growth, prompting a wave of investor bets to profit from the upheaval. Many global central banks are weakening their currencies as they try to counter signs of economic gloom, signaled by falling commodity prices, declining inflation and softening growth expectations.

Denmark’s central bank cut its deposit rate for the third time in two weeks on Thursday, charging banks more to hold their money, as it sought to defend its long-established currency peg against a weakening euro, which has tumbled since last week when the European Central Bank adopted a €1 trillion-plus ($1.129 trillion) stimulus package.

On Thursday, the dollar climbed to an 11-year high against a basket of currencies and is up 15% in the past year.

On Thursday, the WSJ Dollar Index, which gauges the dollar against a basket of currencies, hit its highest level since September 2003; a day after the Fed offered an upbeat assessment of the U.S. outlook and signaled it would be patient in raising rates. The Fed signaled that it doesn’t expect to start raising rates until June at the earliest.

NZD/USD Fundamental Analysis February 2, 2015 – Forecast

The NZD/USD gained 12 points in the morning session to trade at 0.7280 after the release of building consents which printed lower than last month and the US dollar dipped.  The New Zealand dollar has hit a four-year low against the United States dollar after tumbling by more than US6 cents this week.

The kiwi touched US72.3c shortly before 8am today, its lowest level since March 2011, after breaking the US73c yesterday following the Reserve Bank’s official cash rate (OCR) announcement. Although the OCR was kept at 3.5 per cent, Reserve Bank governor Graeme Wheeler signaled a major policy shift by saying the next interest rate move could be either up or down.

The New Zealand dollar touched a fresh four-year low on increased bets the Reserve Bank may cut interest rates after governor Graeme Wheeler said inflation will stay low for longer and rates could go either way.

USD/JPY Fundamental Analysis February 2, 2015 – Forecast

The USD/JPY dipped 24 points to trade at 118.07 after the release of monthly Japanese data indicated that consumers were not benefiting from the massive stimulus plans, while industrial production missed expectations. The US dollar eased over the last two days after the FOMC decision.  Japan’s industrial production snapped two quarters of decline, signaling the world’s third-largest economy may have limped out of recession.

Output rose 1.8 percent in the three months through December from the third quarter, the trade ministry said Friday. While household spending fell and inflation slowed in December, the labor market continued to tighten, with the ratio of jobs to applicants rising to the highest in more than two decades and the unemployment rate falling to the lowest since August 1997.

An increasing number of investors came to believe that the U.S. Federal Reserve will move ahead with an interest rate hike by the end of this year, or possibly in June at the earliest, after the Fed upgraded its economic assessment in a statement issued after a two-day meeting of its policy-setting Federal Open Market Committee through Wednesday.

The dollar rose against the yen in Asian trade Thursday, driven by month-end dip buying by Japanese corporate investors. Market participants also pointed to comments by Japan’s top spokesman that some interpreted as the government leaving open the possibility of further easing by the Bank of Japan, following remarks earlier in the week suggesting that was no longer the government’s position.

AUD/USD Fundamental Analysis February 2, 2015 – Forecast

The AUD/USD gained 28 points as the US dollar eased a bit to trade at 0.7788 after PPI print and private sector credit met expectations.  The Australian dollar has stunned foreign exchange markets by hitting a new five-and-a-half year low amid growing expectations of a local interest rate cut. The Australian dollar plunged as falling commodity prices dragged it to a low.

There is a growing expectation that if the Reserve Bank of Australia does not cut the cash rate next week, it will at least indicate it is open to a reduction sometime this year. The prospect of an RBA rate rise has softened after the European Central Bank launched an economic stimulus plan, and interest rates were cut in Canada and Singapore.

The Aussie dollar has now lost the best part of 3 cents against the greenback over the past couple of days, after having rallied on Wednesday afternoon due to higher-than-expected Australian inflation figures.

While US dollar strength has played its part, the Commonwealth Bank’s chief currency and rate strategist Richard Grace told ABC News Online that price slides for copper and other metals weighed more.