Talk of UK Triple Dip Recession Gains Momentum

USD: What to Expect from FOMC
EUR: Drops to 3 Month Lows after Cyprus Parliament Rejects Levy
GBP: Beware of BoE Minutes and Budget
CAD: Manufacturing Sales Drop fourth time in 5 Months
AUD: RBA Leaves Door Open to More Easing
NZD: Current Account Numbers Due
JPY: Say Hello to New BoJ Gov Kuroda

The British pound is trading cautiously ahead of Wednesday’s busy economic calendar. Individually each of tomorrow’s economic reports has the power to trigger big moves in the GBP but collectively, an explosion in volatility is almost assured, especially after the recent consolidation in the GBP/USD. Between the Bank of England minutes, the country’s employment numbers and the 2013 Budget, we are looking at an active day for the currency. Based on the trend of recent economic reports and the PMI numbers, the BoE minutes and employment data could be negative for sterling. At the February monetary policy meeting, the MPC voted 6 to 3 to keep Quantitative Easing unchanged with Governor King joining Fisher and Miles in favouring more QE. While the majority still voted to keep policy steady in March, one more member could have sided with the minority as talk of a triple dip recession gains momentum. If we are right, the GBP/USD will collapse. Jobless claims could also fall less than anticipated or worse increase given reports that the manufacturing sector saw staffing levels reduced at its quickest pace in 40 months. However the U.K.’s employment numbers will take a backseat to the BoE minutes and the U.K. Budget. Chancellor Osborne is expected to release a tighter fiscal budget with possible initiatives to help credit flows. The BoE’s inflation target could also be reviewed and more flexibility in the central bank’s inflation target would be negative for the British pound. If the inflation target is not reviewed however, the Budget could lend support to the GBP but only if the BoE hasn’t grown more dovish.

Forex traders remained focused on the headlines out of Cyprus, which not only determined every pip move in the euro today but also the moves of most major currencies. We discuss this in detail in the EUR/USD portion of commentary but in a nutshell, the Parliament rejected the levy on deposits. In response, the euro sold off aggressively as investors flocked into safe haven currencies with the U.S. dollar and Japanese Yen being the biggest beneficiaries.

The Federal Reserve also announces its latest policy decision today. Lloyds TSB expect no change in policy and Fed Chairman Bernanke to use the accompanying press conference to reinforce the Fed’s commitment to open-ended QE for now.

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