Today’s Comment
Right now the Federal Reserve is having its interest-rate meeting and tonight at 8.15 p.m. it will issue a press release. We do not expect any changes since the last meeting as this took place only a month and a half ago, and the changes in the economy have been limited. The economic indicators have shown general improvement; this is, however, already included in Fed’s expectations. A theme that will undoubtedly be of interest to the financial markets is the prospect that the Fed may again purchase financial assets, i.e. sovereign and mortgage bonds as well as structured products in the mortgage bond market. We doubt, however, that this will be the case.
Pound sterling got off to a fairly strong start yesterday but saw declines after the release of Q4 GDP figures. The figures did show that the UK came out of the recession in Q4, but growth was somewhat more modest than expected by the market (0.1% as compared to 0.4%). Therefore yields at the short end of the curve fell by up to 10 bps and on that background the weakening of pound sterling was fairly modest. And indeed there is nothing to indicate that the figures will actually block the upswing of the value of sterling. We may,
however, very well be entering a phase where sterling will for a while stabilise at the current levels. Technically it seems that the range of 86.50-86.65 offers good support for EUR/GBP, while on the other hand the range of 88-88.50 will offer some resistance.
In recent weeks JPY has found good support due to the slightly sour sentiment in the financial markets. We do not foresee a major correction in the equity markets, but over the coming weeks there is still a considerable risk of continued nervousness. Therefore we cannot rule out that JPY will continue to appreciate, and we may see a test of 124.35 for EUR/JPY (5.99 for JPY/DKK). However, we still believe in a weakening of JPY in the long term due to the prospects of a continued battle against deflation, which will result in low interest rates.
Today’s Key Events
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N/A Consumer prices (DEM)
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09:30 Producer prices (SEK)
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16:00:00 New home sales (USD)
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20:15 Fed’s interest-rate announcement (USD)
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00:50 Retail sales (JPY)
Today’s Chart – EUR/JPY
