Forex - Pound comes off all-time low against euro after strong services PMI

LONDON (Thomson Financial) - The pound came straight off a fresh all-time low against the euro after a key UK service sector survey came in much stronger than expected, cementing expectations the Bank of England will hold off cutting interest rates tomorrow.

The Chartered Institute of Purchasing and Supply's services PMI jumped to 54.0 in February from 52.5 in February, its highest level since September 2007. Analysts had expected the survey to drop to 52.2.

However the BoE will be alarmed to see the output and input prices sub-index both climbed to their highest level since the survey began, reinforcing their concerns about a strong uptick in consumer inflation over the coming months.

At 9.34 am GTM the euro was trading at 0.7667 stg, having hit an all-time high of 0.7689 stg seconds before the data was released. Against the dollar the pound climbed to 1.9770 usd from 1.9710 usd just before.

Forex - Dollar steady ahead of key US news

03.05.08, 7:59 AM ET

LONDON (Thomson Financial) - The dollar remains steady against the euro ahead of some key US economic data this afternoon and on the eve of an interest rate decision from the European Central Bank.

Earlier, the US currency recovered some ground as traders squared up positions ahead of a raft of US economic data. The euro's move as high as 1.5250 usd during yesterday's session proved short-lived as investors awaited further clues on the health of the US economy and what the Federal Reserve will do at its next rate-setting meeting on March 18.

The most important news today is likely to be the Institute for Supply Management services index for February. Though this is expected to have risen to 47.5 from 44.6, it still remains in contraction territory.

The monthly ADP employment report, a closely-watched gauge of the US labour market, will also be at the forefront of the market's attention.

'If these data show that the credit crunch is starting to affect corporate activity and the labour market more severely than had been expected, the dollar may resume its nosedive,' said Mitsubishi (other-otc: MSBHY.PK - news - people ) UFJ Securities forex manager Minoru Shioiri.

Both the upcoming data and the corporate news may well determine whether the Fed cuts its benchmark funds rate by 75 basis points to 2.25 pct or by 50 basis points to 2.50 pct.

Elsewhere, attention will focus on Thursday's interest rate decision from the European Central Bank.

Though the ECB is unlikely to follow the lead across the Atlantic, there are growing expectations that the central bank's president Jean-Claude Trichet will sound a more dovish tone in his ensuing press conference.

Anything he says about possible intervention to stem the export-sapping rise in the euro will be particularly important to the near-term levels of the single currency.

Both EU Commission and Eurogroup lawmakers have fired warnings about the euro's level in recent days.

'Given the ECB's mandate to ensure price stability and the Fed's willingness to see further improvement in export growth, the risk of unilateral or coordinated intervention to precipitate a euro adjustment against the dollar is low at this stage,' said Ashley Davies, currency strategist at UBS (nyse: UBS - news - people ).

Elsewhere, the pound recovered its poise after a key survey into the services sector saw output growth accelerate and price pressures elevated.

Analysts said the prospect of another imminent rate cut from the Bank of England is likely to diminish further by the news that output in the UK services sector unexpectedly rose during February.

The survey from the Chartered Institute of Purchasing and Supply also showed that price pressures in the sector, which accounts for over two-thirds of UK GDP, are at their highest since records began more than a decade ago.

'The combination of faster growth and stronger price pressures shown in February's CIPS report on services undoubtedly supports the case for the MPC to be cautious about how quickly it cuts interest rates,' said Vicky Redwood, economist at Capital Economics.

Despite the sharp rise in the CIPS index, the euro is still trading near its new all-time high of 0.7689 stg.

Markit in Talks With Banks on Index Tied to Auto-Loan Bonds

March 5 (Bloomberg) -- Markit Group Ltd., the owner of benchmarks for the $45.5 trillion credit-derivatives market, plans to start an index that would allow investors to bet on securities backed by auto loans, people with knowledge of the plan said.

Lehman Brothers Holdings Inc., Morgan Stanley, Bear Stearns Cos. and Merrill Lynch & Co. are among the firms in talks with New York-based Markit to create the index, said the people, who declined to be named because the discussions are preliminary. The index would be linked to debt backed by auto loans from issuers such as Detroit-based GMAC LLC and Ford Motor Credit Co.

The Markit index would be the first benchmark allowing investors to speculate on the credit quality of securities backed by auto loans in the same way they use indexes to bet on subprime and commercial mortgages. Those indexes plunged in the past seven months as subprime mortgage defaults rose to records, sending investors fleeing to safer assets such as U.S. government debt.

``The notion of an index linked to auto-loan securities makes sense because it will allow investors to short the consumer,'' said Jeff Salmon, portfolio manager at Bank of New York Mellon, which has $500 billion in assets under management.

Markit spokeswoman Teresa Chick in London declined to comment. Spokespeople for Lehman, Morgan Stanley, Bear Stearns and Merrill Lynch, all in New York, declined to comment.

Slowing Economy

Credit-default swaps are based on bonds and loans and used to speculate on a borrower's ability to repay debt. They were conceived to pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrower fail to adhere to debt agreements.

Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.

The auto index would act as a credit-default swap contract and would be linked to bonds backed by auto loans and offer protection if the securities aren't repaid as expected, in return for regular insurance-like premiums.

Delinquencies on prime auto loans in securities issued in 2006 rose 18 percent compared with 2005 and exceed the ``historical highs'' of 2001, Standard & Poor's said in a report Jan. 22. Yields on three-year, AAA rated bonds backed by auto loans trade at 140 basis points more than benchmark rates, up from 75 basis points at the start of the year, according to Deutsche Bank AG data.

Forex - Dollar gets some respite ahead of US economic news

03.05.08, 3:40 AM ET

LONDON (Thomson Financial) - The dollar recovered some ground as traders squared up positions ahead of a raft of US economic data.

The euro's move as high as 1.5250 usd during yesterday's session proved short-lived as investors awaited further clues on the health of the US economy and what the Federal Reserve will do at its next rate-setting meeting on March 18.

'Many are now looking for the ISM services index and ADP payroll survey today for near term direction, whilst the non-farm payrolls on Friday will also be keenly awaited,' said James Hughes, analyst at CMC Markets.

'The crunch point is going to be if the credit crisis of last year is seen to impact elements of corporate activity and if this is indeed the case then the greenback may well find itself under renewed pressure in the near term,' he added.

Both the upcoming data and the corporate news may well determine whether the Fed cuts its benchmark funds rate by 75 basis points to 2.25 pct or by 50 basis points to 2.50 pct.

Elsewhere, attention will focus on Thursday's interest rate decision from the European Central Bank.

Though the ECB is unlikely to follow the lead across the Atlantic, there are growing expectations that the central bank's president Jean-Claude Trichet will sound a more dovish tone in his ensuing press conference.

Daragh Maher, senior FX strategist at Calyon, said he will be looking at tomorrow's press conference to see if there are any hints about intervention to stem the export-sapping rise in the euro.

'The likelihood is that the market will become progressively de-sensitised to the chatter if there is no meaningful threat of action,' said Maher.

'Tomorrow's ECB meeting will be the next port of call to see how potent the intervention threat becomes,' he added.