"FBS analytical review 2011-2012"
Pound: comments and forecasts
According to Bloomberg Correlation-Weighted Indexes, British currency added 0.7% versus the developed nations’ currencies (US dollar increased by 1.1%, while euro lost 1.4%, the Index shows) in 2011. Sterling gained 2.3% against euro and ended the year almost unchanged versus the greenback.
Pound will be helped by the fact that the effects from the VAT increase are disappearing and, consequently, the inflation pressure might decrease. In addition, Olympic Games 2012 will encourage tourism and consumer spending.
Among sterling-negative factors one should name the consequences of the severe austerity measures, the slump of the world’s business activity and the negative effects of the European debt crisis on British economy.
The pace of wage growth in Britain falls behind the pace of the price growth. As a result, disposable income of British people is declining and causes contraction of retail sales provoking general economic weakness of the United Kingdom.
Last year the pair EUR/GBP was steadily declining under the influence of debt problems in Europe. The European currency fell from the year maximums in the 0.9080 area to the levels in the 0.8300 area hit so far. For now pound’s appreciation doesn’t bother UK monetary authorities. Most likely, the Bank of England will think of taking some measures to curb sterling only if the pair drops to the 3-year minimum at 0.8000.
The pair GBP/USD has been trading in a more volatile way: during the past 6 months the British currency has reached the maximum at $ 1.66 and hit the minimum at $ 1.53. Pound is expected to stay above support at $ 1.52. If this level is broken, the pair may test $ 1.50. The rebound may take the pair to $ 1.6150.
Depending on what course the things will take in the first quarter of 2012, both Britain and the United States may get into another round of quantitative easing. The experts think that British central bank will increase its asset purchase program in February when the current stage of the purchases is finished. Until that moment the currency moves will be determined by the market forces.
Chart. Weekly GBP/USD
Yen: comments and forecasts
Japanese yen has strengthened in 2011 versus all major currencies gaining 4.2% against the US dollar and 6.7% against euro, although Japanese authorities have sold at least 14.3 trillion yens ($183 billion) trying to stem the appreciation of the national currency.
It’s necessary to remember that the fiscal year in Japan ends on March 31. Usually yen tends to rise in the first months of the year. The advance of Japanese currency accelerates through March. Then in early April the trend changes in the opposite direction as Japanese companies finish seasonal repatriation of profits and the funds start flowing out of Japan.
This time, given the prevailing risk aversion environment, Japanese companies may decide to leave their money at home in April. However, if risk sentiment improves, the outflow from yen will strengthen. Until that happens, yen will remain strong and continue to consolidate. So, the future of Japanese currency depends on investors’ risk sentiment and on whether the greenback will be attractive as a safe haven.
The pair USD/JPY still stays within the longer-term downtrend which has been developing since the middle of 2007. During the last few months US dollar has been consolidating between 75 and 80 yen. One will be able to speak about the long-term trend reversal only if the pair consolidates above the psychologically important point of 80 yen and then overcomes 100-week MA in the 84 yen zone.
Chart. Weekly USD/JPY
Comment here FBS analytical review 2011-2012 // FBS Markets Inc.
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