US Dollar:
The Dollar was down against Sterling and the Euro this morning as traders pulled out of the safe haven currency on news the markets were coming back after the Dubai news was passing and equity markets were looking promising. The Dollar will continue to be tied to the global economy and as positive data emerges, so will the decline in need for the risk averse dollar and so its strength. Look to two employment indicators before the all important U.S non-farm payroll data is released on Friday; Challenger job cuts (change in the number of job cuts announced by employers) and ADP non-farm employment change (change in employed people during last month). These will give an indication of how the jobs data will look on Friday, something that should move the dollar. GBP/USD 1.6628 currently, EUR/USD 1.5095.
Pound:
Sterling started to recover yesterday afternoon by around 0.5% against the Euro and over 1% against the USD as market confidence was restored after Dubai concerns waned. “The market seems more confident about the Dubai situation,” said Steven Barrow, head of group of 10 currency strategy at Standard Bank Plc in London. “U.K. banks are at the forefront of this problem and therefore an easing of the problem gives sterling a special lift.” The pound was also helped by positive Nationwide house price data which said the average cost of a home in the UK increased by 0.5% last month. Sterling was initially hit by weaker manufacturing data in the morning which showed far less expansion than forecast by economists but this was only one snapshot of manufacturing with further data on this sector due on Tuesday next week. In other positive news surrounding the economy (for a change) Adam Posen an MPC member at the Bank of England said “The recession will be over, it’s a question of, do we get a strong recovery…we still think it’s the most likely outcome.” From a political perspective the news was less optimistic after the Ernst & Young ITEM club (economics group) reported that the chancellor will need to find an additional £15bn over the medium term to meet government borrowing targets set out in the budget, a reminder of the problems surrounding our government debt. Today’s main UK economic data sees the release of construction PMI expected to continue to show contraction at 46.9. In my view leading up to Christmas sterling is unlikely to rise much higher against the Euro and if anything weaken again as we draw closer to the end of 2009.
Euro:
The Euro was up today on the Dollar while remaining in tight ranges with Sterling. The Euro was buoyed against USD as fears of the Dubai debt default recedes, gold is at a record high and the global equity markets pushed up; all prompting investors to buy higher yielding currencies like the Euro. European Consumer prices were also reported to be higher than expected yesterday and with euro-zone producer prices expected to make similar reading today, the Euro should receive a further boost. The outlook for Sterling against the Euro is still bearish until the U.K economy shows real signs of recovery in line with Europe. Watch MPC member Spencer Dale’s public appearance today for any signs of a hint on next weeks interest rate decision. GBP/EUR steady at 1.10, EUR/USD up at 1.5095.
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Quote of the Day
“The reward for conformity was that everyone liked you except yourself.” – Rita Mae Brown
