US Dollar:
The Dollar was down against Sterling this morning as strong Chinese economic data fuelled optimism on the global recovery, prompting a move out of the Dollar into the higher yielding Euro and Antipodean currencies. USD moved in tight ranges against the Euro this morning but U.S retail sales numbers released tonight could be key for how the Dollar performs into the New Year and the first quarter of 2010. If consumer spending, something showing little signs of recovery at present, picks up this could spur buying in the Dollar. Moody’s credit rating agency said they have no plans to revise the AAA ratings of the U.S, boosting positive sentiment for investment there and the strength of the currency. EUR/USD currently 1.4750, GBP/USD 1.6322.
Pound:
The pound is continuing to trade within tight ranges against the Euro at 1.1065 and has made some small gains against an in favour USD. Although economic news has been poor for the UK with Wednesday’s pre-budget report failing to provide real reassurance that the UK’s massive deficit will be reduced soon the Euro-zone has also been given it’s share of bad news.
An outright downgrade of Greek debt and a negative warning on Spanish debt has seen investors sell the Euro, helping the pound maintain some strength against the currency. The Bank of England news was very much as expected yesterday which saw key interest rates left at 0.5% and the quantitative easing programme unchanged at £200 billion. As I forecasted this move lead to a reasonably quiet day of trading for sterling which earlier in the day saw some recent losses regained from Wednesday. Unfortunately (and I apologise for sounding like a never ending tape recorder) the prospect for sterling strengthening relies very much on UK economic recovery and the lifting of current “recessionary pressures”.
The MPC and Mervyn King are playing a waiting game on this subject with fourth quarter (2009) preliminary GDP data (due next year) providing a much needed reading on the current economic condition of the UK. Paul Robson, currency strategist at RBS Global banking in London, said that Britain’s precarious fiscal position means the outlook for sterling “remains challenging” and added that there is a “clear risk” the BoE will have to expand QE. UK consumer inflation data is due out shortly and is expected to increase sharply over the next few months. The main inflation data CPI (consumer price index) is due out on Tuesday next week. Have a great weekend!
Euro:
The Euro was down slightly on Sterling and the Dollar as it emerged that currencies with budget surpluses were performing better than those without. This had arisen from the shift in trading patterns caused by the downgrade of Greek debt and warning in Spain. Investors were more cautious of the Euro as it was suggested other Euro-zone countries could also suffer regarding their deficits, Sterling was similarly affected with the pre-budget report lending no support to a reduction in the U.K budget deficit any time soon. This caused Sterling/Euro to trade in tight ranges today with little movement.
Later today the ECB President is in London to deliver a speech and the Greek central bank Deputy Governor Papadakis speaks in Athens to try to calm nerves over there. Eyes will be in the U.S though on retail sales and consumer sentiment data to see how the U.S economy is fairing in the run up to Christmas. EUR/USD 1.4750, GBP/EUR holding steady for now at 1.1065.
Joke of the Day
A man walks into a bar with a roll of Tarmac under his arm and says: “Pint, please, and one for the road…”
