Forex Investment and Currency Trading

Recent UK data have continued to surprise to the upside. However, today’s the BoE’s May Inflation Report (IR) is published (10:30 BST) and has the potential to be a significant GBP negative. The growth forecasts are bound to be revised down and the risks are strongly tilted to them being surprisingly pessimistic again. The likely change to the inflation forecasts is more difficult to judge. Weaker growth than previously expected, both in the UK and the global economy, will add to downwards pressure. On the other hand, CPI inflation remains well above target and has surprised a little to the [...]

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EUR/USD expected to fall to 1.20/1.25 in the first half of 2009, while GBP/USD is expected to test 1.40. The ECB and the BoE will cut rates further, with the ECB having the most work to do.
Both EUR and GBP will strengthen against the USD in 2009 H2 but neither currency is likely to re-visit its highs against the USD from earlier this year. Look to sell EUR/ GBP in Q2 of next year, as GBP should benefit more from global reflation and lower risk aversion across global markets.

FX Strategy - Sell EUR/USD to open the new year, looking for a move [...]

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While UK economic growth has remained resilient compared to the US, the British economy continues to show signs of the potential for a sharp deterioration in the months ahead. However, surging inflationary pressures will likely prevent the Bank of England from cutting interest rates again ahead of 4Q 2008. Since the MPC’s May 8th meeting, when the BoE somewhat unexpectedly kept rates on hold at 5.00%, the market has dramatically altered its expectations of UK interest rates in favor of tighter monetary policy. However, the GBP has thus far failed to strengthen in reaction to the market’s changed interest rate [...]

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The USD Index rallied about 1% last week as expectations for Fed easing have stabilized and the employment decline was not as large as expected. While the Fed want to end the easing process, expectations for tightening before yearend remain excessive. While the USD has probably bottomed, further gains in the near term remain unlikely, and market continues to expect the downside USD adjustment will increasingly shift toward Asian currencies.
Weaker Euro zone economic reports have taken the trade-weighted EUR down about 2% from its April 22 cycle high. While the economic momentum in 2Q 2008 is clearly softer, it will [...]

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