US Dollar:
The Dollar is continuing to show who is boss in the currency markets and the expense of the Euro and pound. “The stars are aligning a little bit for dollar strength more so than they have in the (recent) past,” said John McCarthy, manager of currency trading at ING Capital Markets in New York. Investors are continuing to focus on a more colourful looking economy for the US with interest rates likely to rise sooner than originally expected. Some market participants are continuing to assess whether recent strength is a reflection of year-end positioning rather than a shift in fundamental economic data, favouring the currency.
“Dollar strength at year-end is likely to be short-lived,” said Daniel Katzive, foreign exchange strategist at Credit Suisse in New York. “Coming into the new year, rate differentials aren’t going to provide the U.S. with enough of a yield advantage to keep the dollar strong,” he said. The main US data due today is existing home sales expected at 6.29M due at 3pm.
Pound:
The pound is managing to hold above 1.12 against the Euro this morning but is continuing to lose ground against the USD trading down into the 1.60 area. UK GDP data has been released this morning at –0.2% against a forecast of –0.1% for the three months to September continuing to show that in the third quarter of 09, the UK was still in a recession.
Tomorrow is also a big focus for market participants when the BoE release minutes from the last MPC meeting expected to show a unanimous vote to keep rates where they are. However, many are unsure as to what the BoE will do next with QE (money printing) beyond the current level of £200 billion. Adam Cole, global head of FX strategy at RBC Capital Markets said “We currently expect 200 billion sterling to prove the ultimate limit for the BoE’s foray into gilt purchasing,” There is however expectation by some that further expansion in QE will occur in February in order to revive our economy further, this is continuing to add to uncertainty over the BOE’s monetary policy stance and undermine sterling’s value.
In other economic news just out the quarterly current account data has been released better than expected at –4.7B against a forecast –8.1B, showing a narrowing trade gap (difference in value between imported and exported goods). The pound is unlikely to make significant gains before tomorrow’s UK data and the markets start winding down for the festive break.
For some people because of such poor weather conditions for travelling anywhere, the festive season of one too many mince pies and glasses of mulled wine has already begun, have a great Christmas!
Euro:
The Euro is continuing to look weak in the short term against an in demand USD before the year is out. The Federal Reserve is likely to raise rates before the ECB causing more repatriation of funds into the USD in addition to renewed risk aversion by investors next year which is likely to hit the Euro. Central bank reserve managers have refrained from buying Euros in recent weeks which is adding further pressures on the single currency. Sterling is continuing to take advantage of this situation of continued Euro weakness.
Quote of the Day
The most important thing to do in solving a problem is to begin—Frank Tyler
