EUR/USD is little changed from the London open though the USD has retained a slight bid tone. Talk of safe haven demand circulated in Asian hours as the World Bank revised lower its forecast for world growth this year to -2.9% on the back of a deeper than expected downturn in developing economies and as the death toll in Iran increased. Attention is increasing turning to this week's FOMC and the tone of the rhetoric that the Fed will employ.
In line with the safe haven theme the NZD and the AUD have both fallen back significantly vs the USD. The JPY initially pushed higher vs the USD in choppy overnight trading finding additional support in the improvement in Japan's April tertiary index confidence measure, though USD/JPY95.80 continues to offer solid support.
The Fed is expected to leave interest rates unchanged this week and refer to a slightly more upbeat economic outlook, despite the gloomy tone of the Beige Book. No increase in its asset buying plan is considered likely this month though references to QE exit policies are probable. Crucially the Fed will have to walk a tight line between suggesting that the worse may be over and ensuring that it contains expectations for any tightening in policy this year.
The EUR remains mired in greater concerns surrounding the downturn in the Eurozone. The ECB's Nowothy today said the ECB is set to keep interest rates on hold for the rest of the year and the WSJ has re-focused attention on the issue of rising German debt. The German IFO this morning breathed a little fresh optimism into the market rising to 85.9 in June from a revised 84.3 in May. However, the fall in the current conditions component to 82.4 suggests no quick turnaround in economic prospects.
EUR/GBP is pushing lower again, running into support just above the 0.8400 level. Sterling buyers remain encouraged by the perception that the UK economy could be growing again by year end though there was little fresh data this morning. The Rightmove house price data showed a 0.4% fall in prices in June, with activity in the housing market still contained by a lack of availability of mortgage lending. Cable edged lower on the back of the stronger USD.
There has been little net movement in EUR/CHF, the market too concerned about the possibility of intervention to push EUR/CHF below 1.5010.
There are no key data releases scheduled for this afternoon.
