Pound euro rate gains on safe haven demand as UK Construction PMI surprises to downside

Last Updated on Thursday, 02 February 2012 14:45 Written by Rob Samson Thursday, 02 February 2012 14:43

The pound to euro exchange rate is 0.11% lower on yesterday's close at 1.2042.

The GBP found support today off the back of safe haven demand. The construction PMI surprised to the downside printing at 51.4 in January vis-à-vis expectations for 52.5. Though the magnitude of the move was underestimated, the direction was correct as December figures printed higher at 53.2.

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Bond markets continue to demand UK Gilts; seeing the UK issuance as being safer than those on offer in the majority of Eurozone countries.

This in turn drives demand for sterling, regardless of the domestic UK readings.

That said, the FT, alongside analysts at TD Securities, have raised concerns questioning whether the bull run for gilts can continue, as without the severe strains in the Eurozone, it would be hard for the BoE to justify the large tail of expectations looking for a large increase of QE next week.

Elsewhere, looking at the US dollar we see that a handful of releases lie ahead, with Challenger job cuts ahead of the NFP report, and initial jobless claims, which are expected to improve to 371k from 377k prior.

The focus will be on Bernanke’s testimony to the House, beginning at 10am.

There will be some further clarifications on the new policies, and the potential for some pointed questions on the Fed’s increased emphasis on an inflation target within the dual mandate, but on the heels of his post-FOMC press conference last week, it is not expected to offer too many surprises