Euro recovers against major

Headlines

  • Pound higher vs dollar
  • Euro recovers against major
  • Bets against the dollar increase
  • Rand rallies after reports president Zuma will be removed

GBPUSD 1.3865 GBPEUR 1.1247 EURUSD 1.2324 USDCAD 1.2575 GBPINR 89.07 GBPAUD 1.7621 GBPAED 5.09

Poun

  • The British pound edged up to $1.3846 from Friday's low of $1.3764. Despite uncertainties around Brexit, the pound has been propped up by rising expectations the Bank of England will raise interest rates to curb inflation.
    Bank of England’s McCafferty said the UK economy is holding up relatively well, so it is likely rates will need to go up slightly earlier than previously thought. He said decisions on rates will depend on how the economy evolves and the BoE would like to get to a position where they can materially cut or raise rates before reversing QE.

Euro

  • The euro traded at $1.2290, bouncing off last week's low of $1.2206, though it was still more than two cents below its 3-year high of $1.2538 hit on Jan. 25. Buying the euro was one of the popular trades earlier this year on the view that the European Central Bank will scale back its stimulus later this year on the back of a strong recovery in the euro zone economy. Although many market players remain bullish on the euro in the long term, the currency lacks fresh catalysts for further gains amid headwinds from uncertainties ahead of Italy’s election in early March. In Germany, Chancellor Angela Merkel and the leader of the Social Democrats (SPD) face criticism from within their own parties over a new coalition deal that must still be approved by disgruntled SPD rank-and-file members. The risk reversal spreads for euro/dollar options have widened in favour of euro puts, suggesting investors have grown more cautious about the chances the single currency will fall.

US Dollar

  • The dollar retreated on Tuesday as global equity markets showed some signs of stability after their recent rout, reviving risk appetite that has fuelled bets against the U.S. currency on prospects of its narrowing interest rate advantage. Still, many market players are not convinced the worst is over, with U.S. bond yields stuck at elevated levels ahead of Wednesday’s U.S. consumer price data that could rekindle worries about inflation. “I think markets will remain shaky until (Federal Reserve Chairman Jerome) Powell’s congressional testimony on Feb. 28. Markets will try to test him until they hear his thinking,” said a trader at a U.S. bank. The dollar’s index against a basket of six major currencies stood at 90.1392, having fallen 0.26 percent on Monday and edging away from Thursday’s half-month high of 90.569.

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