London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Jul 13 09 10:08 GMT |

Sterling has been hit by more gloom this morning, suffering significant losses against the JPY, the EUR and the USD. The dominant tone in the market continues to favour safe haven although initial consolidation in AUD/USD and small gains in the FT-SE 100 index was suggestive of some reprieve early on in London. Japanese politics have hit the headlines with the ruling LDP party losing its majority in the Assembly to the DPJ and PM Aso calling a general election for next month. Japanese stock markets are lower, the JPY, however, remains heavily underpinned by safe haven demand. A press report citing the IMF as saying that the UK is alone with Argentina as the only G20 country which cannot afford further fiscal support in 2010 has undermined the pound this morning. Reports that the Lloyds banking group is braced for a GBP 13 bln write-off and that its losses are accelerating has pushed the woes of the UK banking sector back to the fore and also weighed on the pound. GBP/JPY fell progressively overnight and this morning, hitting lows of 147.68 so far this session. EUR/GBP has traded above last week's high this morning returning to levels not seen since early June. No UK data has been released today. Tomorrow, June UK CPI data could be key. The market is expecting inflation to finally come in below the BoE's 2.0% target. A number significantly weaker than the 1.8% y/y market median could increase speculation that the BoE will increase its QE program and could increase the pressure on the pound. Japanese Jun consumer confidence data was weaker than expected at 38.1. While it improved from 36.3 in May, the weak economic backdrop goes some way to explain the government's poor performance in yesterday's local election. The resultant loss of the LDP's sway in the Assembly and the decision by the PM to call a general election for next month could result in a change in the ruling party in Japan for the first time since 1955. While USD/JPY initially found support in London hours, JPY buying on safe haven concerns re-emerged pushing USD/JPY down towards 91.80. The US monthly budget statement is due today. The market is expecting a huge USD97.0 bln deficit. Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.