Extreme currency movements

Yesterday’s much awaited liquidity operation by the ECB was passed, but the market had alreadly factored this in. Much of the market attention shifted to Ben Bernanke’s testimony wherein he provided no indication of further easing in the US. This resulted in extreme moves amongst the major currency pairings. Worries surrounding the UK economy seem to be easing following the recent run of mostly positive economic data. Data released earlier today indicated improving housing market scenario, while the manufacturing PMI just released also reveals an expansion, though at a slower pace.

Pound Sterling – UK Markets

Sterling has gained significantly against the Euro following yesterday's events. Data released earlier today indicated that British house prices, as measured by Nationwide, climbed more-than-expected for February. To add to the positive tone, the BoE yesterday indicated that mortgage approvals climbed to a two-year high for January. However, data just released indicates that manufacturing PMI in the UK declined to a reading of 51.2 for February from a slightly downward revised reading of 52 for the previous month. The Pound registered modest gains against the Euro in yesterday’s trade amid receding concerns over further easing after BoE policymakers played down prospects of injecting additional stimulus in the economy. BoE Governor, Mervyn King, indicated that he does not foresee a case for increasing the size of the central bank’s asset purchase target, while his colleague, Martin Weale, opined that it is unlikely that the BoE will inject additional liquidity once the current programme is completed.

US Dollar – US Markets

The US Dollar is trading higher against Sterling and the Euro. Yesterday, the US Dollar gained against the Euro after the US Federal Reserve Chairman, Ben Bernanke, refrained from offering any indication regarding further monetary easing. The upward revision to the US GDP growth for the fourth quarter also quashed speculation of additional stimulus. Amid improving economic landscape, the Fed, in its Beige Book business survey, indicated that the US economy expanded at a “modest to moderate pace” in early 2012. Affirming this observation, the Institute for Supply Management’s manufacturing index, scheduled for release later today, is expected to jump to an eight-month high reading for February. Other key economic releases for today include core personal consumption expenditure, initial and continuing jobless claims and construction spending.

Euro – European Markets

The Euro has weakened against both the US Dollar and the Pound this morning ahead of the EU leaders meeting in Brussels starting today. Prior to the meeting, leaders have indicated that “serious action” is needed to revive the economic growth in the region. Meanwhile, the much hyped Long Term Refinancing Operation (LTRO) conducted by the ECB yesterday did not have a significant impact on the Euro as traders believe that the liquidity injection is unlikely to solve the region’s structural problems. The ECB allotted €529.5 billion to the region’s banks through its liquidity window, wherein 800 financial institutions tapped these funds, compared to 523 banks that benefited from the previous liquidity facility. Meanwhile, the recent uptrend on the economic front continues, with data released earlier today confirming an expansion in the manufacturing sector activity in Germany and France for February. Additionally, data released yesterday indicated that Eurozone inflation eased unexpectedly for February.

Other Currencies – Highlights

The Swiss Franc continues to trade in a tight range against the Euro this morning. Data released earlier today revealed that the Swiss economy avoided contraction in the final quarter of 2011 and reduced prospects of slipping into recession at the start of 2012. Additionally, another report stated that Swiss manufacturing sector activity improved for February. However, a survey by the UBS released yesterday indicated that the business climate for Switzerland's small and medium- sized companies worsened in the fourth quarter and outlook for this year remains grim. Meanwhile, Martin Schlegel, the Swiss National Bank’s head of foreign exchange and gold, affirmed that the central bank will not tolerate an exchange rate below CHF1.20 to the Euro.