Sterling Stays Soft Ahead Of BoE Minutes, Job Data

Overnight , the sterling was hammered to a seven month low against the dollar, while the EUR/GBP is back pressing 0.87 on rumors that S&P is preparing to downgrade UK's sovereign rating. While the rumors turned out to be unfounded, there was little buying interest in the pound to help it recover ahead of the today's release of the BoE minutes. The sterling remained the weakest European major since the start of the year on concern of triple dip recession as well as the risk of failure to meet deficit target. BoE MPC member Weale also mentioned the need for further easing to push the pound lower. Meanwhile, there are uncertainties on the impact current BoC governor Carney would have on the BoE when he takes up the head job later this year. The BoE minutes could trigger some deeper selloff in the pound, in particular against the euro, should it deliver a dovish message. At the February meeting, the BoE kept the Bank rate at 0.5%, and the size of the asset purchase program at 375B pound. Surprisingly, the central bank delivered a long post-meeting statement, stressing that the MPC stands "ready to provide additional monetary stimulus if warranted". Another focus will be the FOMC minutes, and all eyes will be on whether policy makers have discussed slowing the pace of the open-ended QE3 asset purchases.

The New Zealand dollar was weighed down by RBNZ governor Wheeler's comments today, and a AUD/NZD recovery helped lift the Aussie mildly elsewhere. Wheeler warned that "when the New Zealand dollar is coming under upward pressure, we want investors to know that the kiwi is not a one- way bet." He noted that RBNZ is "prepared to intervene to influence the kiwi" even though "given the strength of recent capital flows, we can only attempt to smooth the peaks." He said that the G3's ultra loose monetary policies "are aimed at stimulating growth but also have significant spillover effects," and many other countries are affected as investors sought higher yields. Nonetheless, Wheeler noted that limitation of intervention and a swiss-style cap isn't practical for the kiwi. Last week, Finance minister English also said that weakening the kiwi through intervention against large scale speculation is "out in the war zone with a peashooter." The New Zealand dollar was also weighed down by PPI data with PPI inputs unexpectedly dropping -0.3% qoq in Q4, while PPI outputs also unexpectedly dropped -0.1% qoq in Q4. The Australian conference board leading indicator dropped -0.1% in December, while Westpac leading indicator rose 0.2%.

In Japan, trade deficit came in slightly larger than expected at JPY -0.68T in January. The non-seasonally adjusted deficit reached a record high of JPY -1.63T, extending the run of deficit to record seven months. The overall balance was viewed as worse than expected but the details were bad. Exports rose for the their consecutive month by 3.6% non-seasonally adjusted. After dropping for seven months since last June, non-seasonally adjusted exports also rose 6.4% yoy. Imports rose 1.4% mom seasonally adjusted, and and 7.3% yoy non-seasonally adjusted. The data showed that Japan's economy is possibly have a solid base for growth in early 2013. BoJ board member Morimoto said that the central bank will implement "unprecedentedly large monetary easing" this year. Eyes are still on who will be nominated by prime minister Abe to succeed BoJ governor Shirakawa.

In China, foreign direct investor dropped for the eight month in January, by -7.3% yoy to USD 9.27b. Meanwhile, non-financial outbound investment rose 12.3% yoy to USD 4.91b. The data was somewhat distorted by the Chinese New Year vacation.

Looking ahead, BoE and FOMC minutes will be the major focus today. Meanwhile, Germany will release PPI and CPI, Eurozone will release consumer confidence, UK will release job data and the Swiss will release ZEW. New residential construction and PPI is expected from the US.