Comments from the BoE Governor King suggesting that the BoE will reflect on lowering the rate for commercial banks deposits at the BoE pushed the pound through the floor this morning. Ahead of these remarks a weaker than expected reading from the ZEW injected life into the USD and into what had started as a fairly directionless morning. A mixed performance in stock markets overnight had left the fx market with no strong direction. Neither EUR/USD nor EUR/JPY were trading very far from last night’s close ahead of the ZEW posting, but both leapt lower on the release. The ZEW is a survey of financial market sentiment. The fact that both the readings for the current situation and economic sentiment were weaker than expected may imply that the degree of scepticism in the market over the sustainability of recent rallies in risk could be significant. Speculation that the rise in stocks, oil and high yielding currencies such as the AUD may be overdone relative to the improvement in the real global economy has been doing the rounds for weeks, but higher stocks and the leg up last week in EUR/USD suggests that risk appetite has continued to build. In contrast, the fall in the ZEW may be heralding a pullback in risk is on the cards. Full text »
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