Market Wrap..

This mornings institutional research has a distinctly Anglo-Saxon feel to it. The revival of USD is sharply in focus, with many analysts highlighting the numerous reasons for believing that the dollar is fighting back while BoE Governor King´s interview last night has come under scrutiny after he stepped back from claims of verbal intervention, suggesting that GBP had found fair value.

USD

Sebastien Galy of SocGen notes that a trilogy of risk factors are dominating the FX market and they are all pointing towards a stronger dollar. The three issues at hand are the US economic revival, diverging monetary policy expectations and the unfinished Euro area crisis. This belief if shared by Nomura strategists Jens Nordvig, Saeed Amen and Matthew Slade who add US equity related inflows as being a further factor worth considering when examining USD strength. David Bloom of HSBC notes that USD has risen since January and we expect the rally to continue in the short term. He feels that there appears to be an asymmetric bias where both strong positive and negative data could cause the USD to strengthen and for the USD it seems, for now, to be a case of: heads I win, tails you lose. On another note, Jim Reid of Deutsche Bank notes that last night, the Fed announced that it had approved the capital plans of 14 banks in the US in its Comprehensive Capital Analysis and that US banks will be interesting to watch as the US opens. 

GBP

Derek Halpenny of BTMU notes that last night BoE Governor King spoke out to step back from claims of verbal intervention, describing the pound as being “properly valued”. However, he adds that in the context of global focus on currency strength, there was little else that King could really say. Jim Reid of Deutsche Bank adds more colour, writing “The outgoing BoE governor said that “there is momentum behind the recovery that’s coming” and “during the course of 2013 we will see the recovery come into sight”.” David Bloom of HSBC comments that GBP has fallen quite sharply since the beginning of the year, but the fall has actually been relatively modest in historic terms. He writes, “GBP remains above ‘fair value’ levels and we believe the currency could decline further.” Meanwhile, Danske Bank analysts note that GBP stands out as the market is pricing in the probability of a shift in the UK monetary policy framework as we approach the March 20 budget report