– GBP under pressure ahead of likely BoE QE next week
The USD is slightly better bid across the board as the market tone shifts towards a more risk-averse attitude. This will likely continue today as the market is nervous about the potential negative growth repercussions of the automatic spending cuts which will take effect today (more below). However, beyond the moderate USD bid, country-specific factors driving currencies: GBP weakness on a very weak PMI, SEK strength on continued data out performance (PMI, GDP). Our UK economists now expects a 25bn expansion in QE from the Bank of England and the meeting next Thursday; this should keep GBP under pressure. Looking ahead, today Fed Chairman Bernanke will be speaking on monetary policy later tonight at a Fed research conference (topic: Low long term rates). This will unlikely have much impact today with the focus on the sequestration. On US data, we are in line with market consensus for the February manufacturing ISM to fall moderately to 52.5. Today’s Canadian Q4 GDP report could be important ahead of the BoC meeting on Wednesday. We are more optimistic than the market with a 1.1% q/q annualized growth forecast. We think the BoC will soften but no completely remove its tightening bias. This could reverse some of the relative CAD under performance seen recently. We remain long CADNOK.
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BNP Paribas