US Dollar:
The Dollar weakened against the Euro and Sterling this morning as global appetite for riskier, higher yielding currencies than the USD rose. A stronger demand for commodities including gold also supported the view that the world’s economy is recovering, prompting investors to pull out of the dollar and look elsewhere for investment. Recent strong Japanese data such as a 4.8% annualized increase in the country’s GDP could also serve to weaken the dollar as investors may interpret the data as signs that with another major economy showing signs of recovery, a similar global view can be expected. Traders were looking closely at potentially market moving events later today, as Federal Reserve Chairman Ben Bernanke speaks, and U.S retail sales data for October is released. The expectation is of a 0.9% monthly gain in the overall sales figures, more good news for the global recovery and bad news for the strength of the U.S currency. We could see this pattern continue if the data supports it, up until Nov 26, when the U.S Thanksgiving holiday generally indicates less movement in the markets as U.S traders go on vacation. Currently GBP/USD stands in sterling’s favour at 1.6716. Similarly the Euro is up as EUR/USD is currently 1.4973.
Pound:
Sterling is trading over 40 points higher against the USD this morning and 20 points down against the Euro. Rightmove house price data out overnight change the direction in which recent house price data has gone in highlighting that asking prices had fallen by 1.6% between October and November as homeowners tried to shift properties before the traditionally quiet Christmas period. The website portal (used by thousands of estate agents) predicted further monthly falls with recovery not expected to resume until February. In more disappointing economic news the British Chamber of Commerce (BCC) said businesses are finding it more difficult to obtain credit than they were in June, a sign that the QE policy of pumping £200bn in the economy was not yet feeding itself through to small and medium size business. Bank’s in the current climate are extremely cautious with who they lend money to forcing small companies in particular encouraging them to lend money through less traditional means. This has a direct effect on the economy as businesses find it harder to survive and expand reducing demand for new staff in particular. Leading on from this subject any article in the Telegraph said that half of British companies are planning to freeze pay, signaling some pain ahead for this who have managed to hold onto their jobs. This issue now for sterling is very much in parallel with UK and global economic recovery, the pound may well start to fall again if global investors lose their appetite for risk. Adam Cole, global head of foreign exchange strategy at RBC Capital Markets said “We are not convinced sterling’s rebound is sustainable in an environment where the Bank of England still appears to be manipulating rate expectations lower.” There is no UK data due today other than MPC member Tucker speaking in Belgian.
Euro:
The Euro was up against the dollar this morning as stronger demand for gold led weight to traders views that the global economy is recovering and it’s now acceptable to look for higher returns on riskier currencies. The subsequent dollar sell off has seen it lose ground against the Euro, as well as other currencies. The single currency was the real winner over the weekend, as traders with an appetite for risk see it providing solid returns in the near term. This boost strengthened the Euro over most other currencies, including sterling, whose performance of late masks its vulnerability, with Mervyn King himself indicating weaker sterling would be tolerated to ‘help the economy recover’. Further positive data from Europe such as improved German GDP figures will also assist the Euro climb, lending strength to the economy as well as lending weight to the view that the global economy is recovering well, making the Euro look a more attractive buy than the dollar, a moves that should see it strengthen against USD and GBP. Current rates confirm this, as EUR/USD stands at 1.4973 currently, GBP/EUR 1.1160.
UK Manufacturing
John Smedley, the luxury knitwear company, is demonstrating its support for British manufacturing by pulling all of its foreign production back to the UK. The brand said it had been unhappy with the quality of production in China.
