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Today's Currency Insight - Volatility Expected for Pound Dollar Rate as Heavy Data Schedule Dominates

February 15, 2011 - Written by John Cameron

Today sees one of the busiest schedules of data releases in the markets for a considerable time, with several key indicators due out.

Two closely watched market indictors have been announced already, during the Asian trading session, in the form of the Australian RBA’s Minutes of its last policy meeting and the Japanese Central Bank’s interest rate decision for February. The RBA’s Minutes were neutral in tone, on the one hand predicting lower inflation in Australia in the second half of 2011 and expressing concern over relatively weak domestic consumer spending, whilst on the other hand foreseeing continued growth in world markets. Meanwhile, the Bank of Japan chose to persevere with their ultra-loose monetary policy stance by maintaining interest rates at 0.10%. These releases did not spark any significant market moves in Asian equity markets, nor did they have any near-term effects on the relative strengths of the Australian Dollar or Yen.

In Europe, the closely-watched German GDP figure for quarter 4 of 2010 is released in the early morning. Recent German industrial production and retail sales numbers have disappointed, so analysts will be looking to the numbers to provide some evidence of an improvement in the economic climate of Europe’s industrial powerhouse. A worse-than-anticipated figure could bode ill for the pan-Eurozone quarter 4 GDP figure which will be announced three hours later. If these growth numbers come out lower than anticipated at below 4.1% and 0.4% respectively, then expect a flight-to-safety in the currency markets with the US Dollar, the Yen and to a lesser extent, the Canadian Dollar benefiting.

In the UK, Sterling came under selling pressure yesterday afternoon following comments by Business Secretary Vince Cable. He dampened expectations of a tightening of UK monetary policy by stating that it would be ‘potentially very difficult’ for Bank of England MPC members to hike interest rates in the short-term. This morning sees the release of inflation data for January in the UK. Analysts expect the headline Year-on-Year CPI figure to come in at double the government’s target of 2.0%. Anything above the 4.0% level would see the Pound make gains as market participants upwardly revise their UK interest rate expectations.

The standout figure of the North American session comes in the form of the Advance Retail Sales figure for January , which will give the US Dollar direction at the start of the American trading day. However, data released in the Eurozone and UK will have as much, if not more, effect on the Dollar because of the bearing it will have on appetite for risk across global markets. Expect strong moves for the high-yielders, (Australian Dollar, New Zealand Dollar and South African Rand), in the opposite direction to the US Dollar throughout the day and particularly following key releases.
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