Cable saw heavy selling pressure Friday afternoon as the US jobs report saw investors pile back into the greenback at sterling’s expense. Jitters over Greece are also continuing to weigh on the euro, but this is not helping the pound’s position against the mightily buck. The upside to the turmoil in the eurozone over a possible ‘Grexit’ is current levels in GBP/EUR. We have seen sterling remain above the 1.30 handle for the last two and a half weeks, with the rate currently holding firm above 1.34. What is not helping the pound’s corner is falling inflation. Last week saw the BoE keep interest rates at current levels, and BoE Governor Mark Carney is set to slash the BoE’s inflation forecast to nearly zero this week when he publishes an updated outlook for the UK economy. This could be the BoE’s first DEFLATION report!
Those small gains made by the euro at the end of last week were eaten up quickly after the S&P lowered Greece further into junk territory with a one notch downgrade to B-, they were also left on watch negative with a further cut likely if perceive that the likelihood of a distressed exchange of Greece’s commercial debt has increased further. The Greeks are not hiding about stirring up more trouble for the Euro area either by coming out with head line grabbing comments such as the Greek Finance Minister announced at the weekend. If Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday, in comments which drew a rebuke from Italy. Greece’s new leftist government is trying to re-negotiate its debt repayments and has begun to roll back austerity policies agreed with its international creditors. “The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.” Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast.
US stocks finished lower on Friday whilst Treasury bonds and gold prices sank and the dollar rose against major currencies following a stellar US jobs report which kept alive hopes for a June rate hike by the FOMC. The US added 257K jobs in January (f/c.228K) while the prior months 252K was revised up to 329K; the unemployment rate meanwhile rose to 5.7% (f/c. 5.6%) from 5.6% previously. In Europe, S&P lowered Greece further into junk territory with a one notch downgrade to B-, they were also left on watch negative with a further cut likely if perceive that the likelihood of a distressed exchange of Greece’s commercial debt has increased further. This sent the greenback higher versus an under fire single currency which had dragged back some losses earlier in the previous week. Over the weekend, disturbing China trade figures on Sunday showed imports plunging in January by -19.9% y/y (f/c -3.2%) whilst the trade balance came in with a surplus of $60.03 Bln (f/c +$48.90 Bln). Risk sentiment disappeared which has led to more investors running for cover into the uber safe US currency.