GBP slides further in Asia after a downbeat CBI report


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Feb. CPI out at 0.4% m/m, 1.6% y/y vs. 0.3%/1.4% expected and 0.3%/1.9% prior

  • CA Jan. Retail Sales out at 0.7% m/m vs. 0.7% expected and revised 0.5% prior

  • CA Jan. Retail Sales ex-Autos out at 1.8% m/m vs. 0.5% expected and revised 0.7% prior

  • AU Feb. New Vehicle Sales out at -1.9% m/m, +17.1% y/y vs. revised -3.5%/+15.5% prior


THEMES TO WATCH – UPCOMING SESSION (All times GMT)

  • Swiss Money Supply (0800)

  • Denmark Consumer Confidence (0830)

  • US Chicago Fed Activity Index (1230)

  • EU Euro-zone Consumer Confidence (1500)

  • UK BOE’s King to speak (1530)

  • EU ECB’s Trichet to speak (1530)

  • EU ECB’s Gonzalez-Paramo to speak (1545)

  • US Fed’s Lockhart to speak (1945)

Market Comments:

There were no US data releases to dictate sentiment on Friday so early in the session it was left to Canada to pick up the reins. The CPI was higher than expected (more dramatically so on the core inflation reading) and retail sales also beat forecasts so the CAD was well supported early on. However, the first rate hike in a while from India, hiking 25bp to calm an economy that looked to be heading towards overheating, pulled commodities back and the CAD gains soon ran out of steam. As commodities retreated, so commodity-block currencies also fell back and a general mood of risk aversion crept into markets into the close of session.

The EUR extended its retreat as the Greece debt situation remains in the headlines but it was GBP that stole the show, reacting strongly to comments from BOE’s Sentence that a double-dip recession was a risk. There went 1-1/2 big figures in GBPUSD in a short period, compounding the early weakness seen in Asia.

Weekend news saw German Chancellor Merkel calling for greater budget discipline as a prerequisite for her supporting EU aid for Greece, denouncing what she called “superficial” solidarity within the EU. She thought that aid from the IMF was more appropriate, in stark contrast to France’s Sarkozy, adding that, if Greece is not in immediate need of aid, then there was no need to make it the main topic of the EU summit meeting on Thursday.

On the China front, China’s Commerce Minister Chen Deming accused the US of politicizing the value of the Yuan, commenting that pressuring China to strengthen the Yuan “does no good to anyone”. He also warned that a rise in protectionism would threaten the global recovery. To back up his point he said that China’s trade balance likely slipped into the red in March, even though the Yuan was stable, suggesting that exchange rate changes would have a “limited” impact on trade.

The start to this week was a quiet affair in Asia with Tokyo centre closed for a public holiday. The general mood of risk aversion was still evident early in the session with the USD gaining across the board (+0.1% on the USD index). Commodities were stable after Friday’s tumble (more due to lack of interest?) and as a result commodity currencies were also stuck in tight ranges.

The UK’s CBI issued a subdued outlook on the UK economy in which it expected the recovery to be “slow and sluggish, with few signs of real strength until well into next year. For 2010 it forecast growth of just 1.0%, at the bottom end of the government’s 1.0-1.5% range, rising to 2.5% in 2011. On the interest rate front, the CBI forecast that the BOE would begin tightening monetary policy in Q3 with small, incremental hikes brining the base rate up to 2.0% by the end of 2011.

The data calendar remains sparsely populated into Europe with Swiss money supply, Denmark consumer confidence and the EU equivalent later during the US session. It is another quiet day in US again, with Chicago Fed Activity Index the only release scheduled. Watch for speeches from BOE’s King and ECB’s Trichet late in the session.