US Dollar:
The Dollar remained strong against Sterling and the Euro this morning as many traders see the Dollar continuing to benefit from ‘risk-trading’, where downbeat economic news such as Spain losing their higher credit status and Greece’s economy in trouble has prompted investors to buy into the safe haven Dollar. While it is expected that at some point the Dollar will move in line with more traditional growth and interest rate fundamentals, the global economy as it is as well as riskier positions being closed out before the year end, mean the Dollar is still affected by traders risk strategies.
Sterling played its own part in boosting Dollar strength against it by weakening to its lowest level in two months on the back of a UK finance report highlighting concerns in the U.K economy, citing Greece and Spain’s downgraded credit ratings as signs of things to come.
There is a good amount of data out today that could affect the rate, including U.S unemployment data and Trade Balance, and a Rate Decision in the U.K. GBP/USD 1.6718, EUR/USD 1.4710 currently.
Pound:
Sterling is trading more calmly this morning after seeing a range of 1.0997 to 1.1103 against the Euro and 1.6187 and 1.6374 vs the USD. Leading up to and during the first part of the pre-budget speech the pound had been rallying against the major currencies as more positive rumours circulated around the market. Darling postponed major spending cuts but raised future taxes for anyone earning more than £20,000 to fund schools and hospitals increasing national insurance by an additional 0.5% to an overall rise of 1% in 2011.
The Chancellor landed himself or his successor with a budget deficit continuing to run at more than £170 billion, public debt set almost to double to £1.5 trillion increasing the risk of the UK losing it’s triple A credit rating. The pound has in the short term amongst all of this mess held relatively firm against the Euro continuing to trade in the 1.10 range with some pick up from yesterday’s big fall against the USD.
Today we have a fresh round of economic data with the release of the Bank of England interest rate and QE decision, neither are expected to change providing what could be a quiet day of trading.
Looking ahead we have important inflation data on Friday and on Tuesday which will provide a fresh snapshot on economic activity in the UK and the BoE with key data to assist with monetary policy in the coming year. Those who need to buy currency and are wishing to avoid risk should look to lock in a rate for at least some of their requirements sooner rather than later.
I must apologize for writing such negative reports particularly in the last few days, I will promise to add some humour in the next few days as we draw closer to the festive season…
Euro:
The Euro held firm against Sterling this morning, while losing ground against the Dollar. Sterling has its own problems, on the back of pessimistic government rhetoric and concerns over debt in the U.K. The single currency was buoyed slightly yesterday as it emerged that the Spain and Greece credit status downgrade wouldn’t have as negative an effect as first feared. This points towards traders continuing to ‘risk-trade’ – buying into the Euro in healthier times to maximize profit on the currency with a higher yield than the Dollar.
There seems to be no domino effect from the Greece and Spain news as yet, but the problem could easily elevate as many currency analysts see the euro-zone as only as strong as its weakest link.
Concerns over public debt in the U.S have led to the Euro performing so well against the Dollar this year, but the Euro could now be under pressure with escalating fiscal problems in Euro-zone countries questioning the feasibility of the European monetary union as a whole. A GBP Rate decision, ECB President Trichet speaking and other U.S data of note should move the markets today. EUR/USD 1.4710, GBP/EUR 1.1060.
Quote of the Day
“It is better to fail in originality than to succeed in imitation.” – Herman Melville
