Daily Currency report

From Peter-John Theuninck, Currency Analyst at Baydonhill FX.

Sterling fell on Tuesday as investors strengthened their expectations for more monetary easing from the Bank of England.

• UK government spending figures will be released at 09:30 (BST) with lower borrowing costs expected.

• April retail sales data for Britain is forecast to show improvement and could offer some support to the Pound.

• Investor confidence continues to weigh on the Euro as ECB policy easing is still expected.

• US existing home sales are expected to have increased in April and could add support for the Dollar.

The UK net borrowing figures for Britain as well as UK retail sales data will be released at 09:30 (BST) and could offer the Pound a reprieve from the selling pressure exerted on the UK currency after Tuesday’s lower CPI inflation numbers.

UK public sector net borrowing is forecast for show a reduction in government spending to £7.0bln from £16.75bln in April. The lower spending figures will certainly aid increased confidence in the Pound as sovereign debt remains a global market theme.

Retail sales figures for Britain are expected to show an increase of 2.0% in yearly sales compared to a 0.5% decline the previous month. This should add further support for the Pound as investors look forward to the second release of Q1 GDP figures being announced on Thursday.

The Bank of England (BoE) monetary policy meeting minutes will be the most significant event taking place or Sterling today. No surprises are being expected from the BoE with a 9-0 vote on keeping interest rates unchanged and a 6-3 split vote to maintain the £375bln value of the asset purchase scheme.

There is once again no Euro-zone data being released today and while German and French PMI figures being release tomorrow will be eagerly awaited, the single currency will trading along with trends that develop in the Dollar.

German producer inflation data released yesterday did little to support the Euro as expectations of ongoing monetary easing by the European Central Bank remain.

The Dollar is still being favoured as a safe haven against global uncertainties and we expect this trend to continue as analysts foresee an earlier reduction in quantitative easing compared to other major global central banks.

US existing homes sales are forecast to show 4.99mln home having been sold in April compared to 4.92mln in March. The data could certainly be Dollar positive but is unlikely to have much effect on Fed policy expectations.

US Federal Reserve Bank Chairman Ben Bernanke gives his testimony before Congress this afternoon with all eyes being on whether the Fed Chairman will signal a possible slowdown in the central bank’s quantitative easing program.

The US currency is not without its problems though as weaker sales data and comments from St Louis Fed President James Bullard weighed on the Dollar yesterday.

The St Louis Fed President Bullard commented yesterday afternoon that the most appropriate policy was to continue with the US central bank’s present quantitative easing, adjusting the pace of purchases based on incoming data events.

His comments put the brakes on speculation that the US Fed may reduce in bond buying program over the short-term and weighed on the value of the Dollar.