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London Market Wrap

Posted by Joseph Trevisani on Feb 15, 2013 7:58:00 AM

EURO

February 15 Friday

The euro shed its gains from 1.3390 and fell 85 points to 1.3305 against the dollar and once again fell versus the yen as the Japanese currency gained for a fourth day in the week as investor demand continued strong.

Speculation remains that the European Central Bank will cut interest rates after the weak GDP report yesterday that showed the eurozone’s economy shrank by 0.6 percent in the last quarter of 2012. The report cast doubt that there will be a recovery in the first quarter of 2013. However, the ECB Governing Council member Jens Weidmann said a rising euro alone will not trigger interest rate cuts.

Jens Weidmann’s comments pushed the single currency higher by 35 points from 1.3355 to 1.3390 in the early hours of European trading. (6:35am GMT)

However, the 1.3390 level proved to be unsustainable with major selling interest from Middle Eastern investors which took the rates down to 1.3320.

STERLING

The pound fell sharply by 70 points to 1.5460 from 1.5530 against the dollar following the weaker-than-expected U.K. January Retail Sales.

The market participants were quick to take their profit and the short covering retracement pushed the rates back to the 1.5505 – 1.5490 range.

 U.K. retail Sales fell to -0.6% in January, well below the median forecast of +0.5% (month-to-month) while it fell -0.6% on a year-on-year basis.

U.K. December retail sales was revised downward to -0.3% from -0.1%.

The National Statistics officials said the retail sales fell because of the low consumption of auto fuel sales due to the snowfall that deterred shoppers.

 YEN

The Japanese yen is higher against most of its counterparties as G20 policy-makers continue their debates in Moscow on strategies to fulfill their pledge not to target currency exchange rates with competitive devaluations. In the absence of a clear resolution from the G-20 and no intervention from the BOJ, market participants bought the yen.

Reuters reported that the former Bank of Japan Governor Toshiro Muto is the leading contender to become the next central bank chief, citing people close to the selection process in Japan. Prime Minister Shinzo Abe is said to be close on choosing his nominees for the top BOJ post and the decision may come in a few days.

The current BOJ Governor Masaaki Shirakawa has been criticized by politicians for his ineffective reign and failing to end deflation which prompted him to step down on March 19, about three weeks before his five-year term is due to end.

Dollar-yen fell by 55 pips to 92.25 from 92.80 while Euro-yen fell by 120 pips to 122.90 from 124.10

 Chris Advincula

Market Strategist

WorldWideMarkets

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