Today’s Comment
Industrial production in the UK has finally begun to grow following the solid fall, but the increase is still only marginal. It is a little worrying that the advance was not stronger during a period with a weak exchange rate and improvement in the global economy. The economic-trend indicators for manufacturing industry do, however, point in the right direction, and we anticipate that industrial production will increase in January.
Pound sterling is currently under pressure due to concern about the future growth prospects in the UK, focus on rapidly growing debt and deficits in the public budgets as well as uncertainty about the parliamentary situation following the impending parliamentary election. Yesterday, pound sterling again suffered a large blow after the release of data showing that the trade-balance deficit was wider than anticipated.
Moreover, a representative of the rating agency Fitch contributed to carrying fuel to the fear of a potential downgrade of the UK’s credit rating when he announced that the country’s credit profile had deteriorated substantially and that there is a need of a more significant adjustment of fiscal policy to reduce the public debt. All in all, pound sterling weakened a shade vis-à-vis EUR over the day, and in the ultra short term, we cannot rule out that trade in pound sterling will be somewhat turbulent. Technically, we assess, however, that we will see good resistance in EUR/GBP around 91.50, and we maintain our positive bias on pound sterling at one month’s term. Still, we recommend investors to be cautious since many risk factors will be at play over the coming weeks.
JPY gained additional ground during yesterday’s trade – especially against EUR and DKK. It was, among other things, the slightly more negative sentiment in the markets which supported JPY but rumours also have it that Japanese exporters have started to withdraw capital to Japan prior to the close of the financial year on 31 March.
Therefore, there is a risk of an additional strengthening of JPY over the coming weeks, and hence we maintain a positive bias on JPY at one month’s term. Recently, we have also seen some focus on the possibility of further monetary-policy easing from the BoJ, and this should, all other things being equal, contribute to a reduction of the JPY strengthening.
Today’s Key Events
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08:00 Current account (DEM)
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09:30 Industrial production (SEK)
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10:00 Consumer prices (NOK)
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10:30 Industrial production (GBP)
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19:00 Speech by ECB’s Trichet (EUR)
Today’s Chart – EUR/GBP (incl. 100- and 200-day moving averages)
