Talking Forex: GBP/USD Pairs Remains Supported By Weaker USD

EUR/USD
The release of updated GDP and CPI projections by the ECB forecasters which now sees growth risks tilted to the downside and have also lowered their inflation forecasts failed to weigh on the pair, which surged higher on the back of touted technical breakout. The move higher was also aided by renewed concerns over in Hungary, with the EUR/HUF trading sharply higher after Hungarian Central Bank monetary policy director Palotai said council is to evaluate HUF exchange rate at next rate meeting. This comes a day after an adviser to the EU's top court said that Hungary's courts can force banks to replace unfair contract terms for customers holding approx. USD 15bln of foreign-currency loans, prompting fears of more loan losses by EU banks with exposure to the country. In terms of Eurozone specific commentary, ECB's Coene said a drop in CPI is not sufficient to force ECB action and that they need more information to see whether to cut rate. At the same time, political tensions in Italy, which also resulted in IT/GE 10y spread widening, did not deter EUR bulls.

GBP/USD
In spite of the EUR/GBP trending higher for much of the session, the pair remained supported by a weaker USD and touted M&A related flows, which in turn ensured that the pair remained in the green. In terms of UK specific macroeconomic commentary, RICS said that UK house prices are likely to keep on rising in the coming years thanks largely to a shortage of properties on the market. Also of note, following yesterday's inflation report, SocGen now expect the BoE to raise the key rate in Q1 2015 from previously forecast Q3 2015.

USD/JPY
Touted risk aversion trades and option related flow saw the pair trade lower throughout the session, with large expiries for Friday seen at 101.50/102.50 levels. There was little in terms of Japan specific commentary and the price action remained a by-product of weaker than expected macroeconomic data from the US and also lower trading stocks in Europe, with better bid USTs which resulted in unfavourable interest rate diff flows also weighing on prices.