US Dollar:
The Dollar was strong this morning against Euro and Sterling after stronger than expected U.S jobs data on Friday lent weight to the prospect of the Fed increasing interest rates sooner than expected. The move indicated a reversal of expected Dollar weakness due to global risk appetite that would usually prompt investors to buy riskier yielding currencies outside of the Dollar. Economists are now suggesting relative growth prospects and diverging economic fundamentals will have a bigger part to play in driving currency movement. The correlation between the Dollar and risky assets has weakened but it may be too soon to see a sustainable trend on the back of a single data point. It is possible if U.S data continues to be more positive than elsewhere in the world, we could see USD and riskier assets rise together like in the late 90’s, rather than the Dollar being a barometer of global risk appetite. GBP/USD down for Sterling at 1.6355, EUR/USD shows massive Dollar strength at 1.4782
Pound:
Sterling is trading down from the 1.1120 high seen on Friday back into the higher end of 1.10 against the euro and has seen severe weakness against a stronger USD now trading 3 cents lower into 1.63. The pound although short of economic data on Friday rallied initially on the back of an increase in risk appetite and demand for higher yielding currencies. By the afternoon and the release of strong US labour market data the pound against the USD began to fall heavily based on a more positive outlook for the US economy and a more attractive prospect for investors. Later on in the day sterling also started to fall against the Euro in a less severe fashion as the pound continued to be “dumped”.
Today is another quiet day for UK economic data with the market now waiting for retail and manufacturing releases tomorrow morning. In the build up to manufacturing production data tomorrow the Engineering Employers Federation reported some positive news today highlighting their expectations for UK factory production to begin growing again in 2010 as exports rebound. Production is expected to grow by 0.9% next year adding to signals that the UK is emerging from the longest recession on record. News that we are starting to emerge from the bottom is always encouraging to hear but the question as always in the pace at which this occurs.
Recent analysis by the Centre for Economics and Business Research has highlighted that the UK is doomed to be relegated from the top 10 international economies over the next few years which could effect our diplomatic status and position globally. This is adding to extreme pessimism over the UK which has occurred in the last few months and will only weigh in on the attractiveness to invest in our country and the pound.
Euro:
The Euro lost ground against the Dollar after the positive jobs data in the U.S rekindled talk of the Fed increasing interest rates, suggesting the U.S was a better prospect for investment than the Euro-zone currently. Close attention will be paid to Fed speakers this week to see if this is confirmed with the Euro set to weaken further against the Dollar if this is the case. ECB President Trichet also speaks at an event today and could give indications of Europe’s economic plan. Sterling Euro was holding steady and unless German data such as German Factory Orders and Sentix Investor Confidence is better than expected the lack of GBP data should prevent any large gains against GBP to be realized today. GBP/EUR currently 1.1060, EUR/USD 1.4782.
Quote of the Day
“We only do well the things we like doing.” – Colette
