United States Dollar:

Improved risk appetite meant that the USD traded broadly lower against most of its counterparts on Thursday. A good initial jobless claims number from the US buoyed investor optimism, sending flows out of the greenback into more risky assets. Sterling strengthened against the USD, reaching an intraday high of 1.5739, but couldn’t participate fully in the wider risk rally with investors taking note of comments from Bank of England policy makers Haldane and Miles, with the former stating that the UK economy is recovering slower than it did in the 1930’s and the latter making the case for further expansion in UK monetary policy. Risk sentiment continues to largely dominate moves in cable, but we have just had the release of the second revision of UK Q4 GDP which came in unchanged at -0.2% q/q. This is despite the recent uptick in UK industrial and manufacturing production data, in particular yesterday we saw the UK factory order index rise to a 6 month high. GBP/USD has got a bid tone this morning and opens at 1.5775.

Euro:

The euro was the best performing currency in the G10 universe yesterday, rallying against both the USD and GBP on the back of a better than expected German IFO number. EUR/USD traded to 1.3374, its highest level in 10 weeks, and EUR/GBP hit a daily high of 0.8499 (1.1766), falling just short of a key technical level at 0.8500. The importance of the German IFO number cannot be understated, with investors hoping that this suggests that the Eurozone powerhouse will escape further economic contraction. The European data calendar is light today, with the release of German Q4 final GDP already released, coming in on par with expectations and on that basis the EUR has caught a bid across the board. We do have the G20 meeting this weekend, but we are unlikely to learn anything new from the discussions which will certainly be concentrated on the European debt crisis. The second revision of UK Q4 GDP has just been released in line with market expectations and GBP/EUR opens this morning at 1.1792.

Australian and New Zealand Dollars:

The commodity dollar bloc rose against the USD yesterday with improved risk sentiment and broad USD selling the main driver behind the move higher. The cessation of the squeeze higher in the EUR/commodity dollar crosses also helped the AUD and NZD. Price action in GBP/AUD was choppy, managing a high of 1.4729 and GBP/NZD was also volatile, touching a high of 1.8882 with both crosses broadly tracking moves in AUD/USD and NZD/USD. Overnight the AUD has performed well, rallying on comments from RBA Governor Stevens, who said that he sees no issue with Australian banks raising rates independently of the central bank and policy maker Lowe stated that he expects business investment to rise by 10% this year and next. As usual expect risk sentiment to dominate moves in the AUD and NZD today. GBP/AUD and GBP/NZD open this morning at 1.4712 and 1.8840 respectively.

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