The spotlight will be on the UK market as chancellor George Osborne prepares to unveil the government’s 2012 budget update. Traders will immediately begin to price-in the potential ramifications on the British economy and its credit rating thus setting up a potentially volatile session for the pound. Sterling will certainly be at risk of profit taking after its recent advance to one-month high versus the euro and move towards February’s multi-month high against the US dollar. The US dollar shrugged of worrying US housing data and instead found safe haven support from declining equity markets and increased risk aversion. Chinese-led global growth worries sparked the move which had a particularly damaging effect on currencies closely linked to Beijing’s demand for raw materials such as the Australian and Canadian dollars. The euro is little changed versus its main trading rivals but is expected to come back into play later this week with key eurozone PMI surveys due for release.
Sterling
Following its recent surge to one-month highs against the euro that also helped to move within touching distance of February’s three-month high, the pound is beginning to look vulnerable as the headlines will almost certainly be dominated by the UK budget update which is expected to set up an unpredictable and possibly explosive day of Sterling trading. The Bank of England will also release minutes from its monetary policy meeting held earlier this month and investors will be concerned at the prospect of additional quantitative easing at some point in the future.
US dollar
The US dollar steadied after hawkish comments from the Federal Reserve helped offset mixed US housing data. Although Fed chairman, Ben Bernanke, has maintained that more asset purchases are still an option, a rate hike as early as this year is also a possibility according to another top official.
Euro
The euro traded in an around familiar price levels against its main rivals with very little eurozone news helping to inspire any new opportunities. The single currency did however manage to regain a little momentum from its British counterpart, holding just above its recent one-month low as markets gear up for the 2012 UK budget.
Japanese yen
BHP Billiton, a global commodities powerhouse, is predicting slower Chinese demand for raw materials and as a result, the comments helped spur risk aversion in Asian markets which typically favours the yen. Still, the yen remains rooted near record lows against the US dollar, British pound and euro on fear the Bank of Japan will continue to place downward pressures on the yen to help support Japanese exporters.
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