Sterling to Extend Decline Towards 0.82 (GBP/EUR at 1.2)
Today will mark a decisive point in this month's trading story: Markets are being sold off in aggressive fashion, the US dollar has been boosted as has the Pound Sterling.
Gilt yields are also shooting up; all in anticipation of US Federal Reserve tapering.
Ishaq Siddiqi at ETX Capital tells us this was not the plan over at the Bank of England:
"It was coming – we knew it from the offset this morning before the market open that investors will spend the session cutting risk in order to protect themselves from further deterioration of their portfolios.
"What’s worrying here is the jump in yields for not only US treasury’s but UK gilts and other core government bonds is doing exactly what Fed, BOE and ECB don’t want – a risk to growth, especially now after the euro zone just managed to exit a recession that lasted six quarters."
Euro / Pound Exchange Rate Forecasted to Decline
Analyst Leander Dreyer has said his base case for Sterling appreciation against the Euro remains intact:
"We still have a positive view of GBP and that our 3 month target for EURGBP is at 0.8200 (GBP/EUR at 1.22)."
However, Dreyer is a little more cautious on this prediction: "We have now for a period grown accustomed to positive economic indicators from the UK, and therefore analysts have raised expectations of the upcoming economic indicators. Therefore we are beginning to be cautious about our expectations."
Euro weaker versus US dollar
Euro weakness has not been in short supply through the course of today's trading session.
David Madden at IG Index says:
"EUR/USD is trading at $1.3229, down 0.2%, on news that there has been a drop of 13,000 in the number of people claiming unemployment benefit in the US.
"Analysts were expecting the figure to remain unchanged. This also means that the number of claimants has fallen to the lowest level since October 2007.
"In addition, the US inflation rate climbed by 0.2% in July compared with June, in line with expectations. Some economists were worried that inflation might rise at a faster rate because of the quantitative easing (QE) programme, but this has not been the case."
More British Pound strength in coming days
UK economic data has been broadly supportive of the UK currency over the past couple of months, today's retail sales were no exception.
Shaun Osborne at TD Securities is forecasting further Sterling strength ahead:
"The GBP has been on a tear over the past two days, and having now pierced through some important levels against the key crosses, is still looking quite buoyant.
"GBPUSD has decisively broken above trend resistance and its 200-day moving average (which both come in at 1.5525/30), and EURGBP has broken below trend support and its 100-day moving average (both at 0.8535/45).
"US data today has the potential to unwind some of these moves—particularly against the USD—but in the case that we get daily closes beyond these thresholds, that would be a decent sign of more GBP strength in the coming days."