Pound:
The pound has moved down this morning to 1.6097 after hitting 1.6195 in trading yesterday and is moving within similar ranges against the Euro. The pound is trading lower after falls in the RICS (Royal institute of Chartered Surveyors) house price balance to 30% from 38% expected. This data represents the percentage of surveyors reporting a price increase in their designated area within the UK.
Other news overnight included the British Retail Consortium sales monitor release which showed a strong rise of 4.2% in like-for-like sales and highlighted positive news for the UK in contrast to the housing data. Sterling is continuing to trade within tight ranges at the moment hampered by the view that the UK economy will remain weak for much of this year and our central bank will be the last amongst the majors to start raising interest rates again. The main themes effecting the prospect for the pound in the coming months revolve around the UK elections and our credit rating which has been put into question several times, after credit rating agency’s continue to question our triple A status amongst a ballooning government deficit. For those of you looking for sterling support and wondering where it may come from (move up for the pound) should look for news highlighting a reduction in the possibility of a hung parliament and ratings downgrade.
UK trade balance data (difference between imported and exported goods) has come out at –6.8B against –6.9B forecast, this a slight improvement as a lower the number here demonstrates a narrowing gap between import and exports.
US Dollar:
The Dollar was marginally higher against Sterling and Euro this morning as risk tolerance shifted lower as traders bought the U.S currency after a report from the executive of a major Chinese sovereign wealth fund was released saying USD had probably hit rock bottom. Many investors are holding steady however, believing any further gains may be lost as the worse than expected U.S jobs data on Friday may still weigh on the greenback by suggesting U.S interest rate increases are a long way off. “The comments prompted some players to reverse bets against the dollar that were made after the negative surprise of Friday’s U.S. jobs data. That was enough to push the dollar up since trade is still pretty thin” at the start of the New Year, said Hiroshi Maeba, executive director of foreign exchange trading at Nomura Securities.
Rate differentials are still moving in favour of the Dollar over Euro and Sterling, so long term USD strength is predicted, although currently we may be seeing a short term spike that could reside with the weight of the poor U.S jobs data and postponement of sentiment towards a U.S rate increase. GBP/USD 1.6102, EUR/USD 1.4480.
Euro:
The Euro moved in tight ranges against Sterling and was marginally down against the Dollar after comments in China prompted traders to buy the U.S currency for short term gains. As trade is thin currently this was enough to push the Dollar up against the single currency, although further profit taking from the Euro should reverse the trend. Key to the Euro’s performance towards the end of the week is the outcome of the ECB’S policy meeting on Thursday.
Euro zone interest rates will probably remain unchanged at 1.0%, but if rhetoric is more upbeat on the economy, the Euro could see some gains. It is generally expected however that the Euro will continue its decline against the Dollar, with events in Europe undermining the single currency.
Euro zone unemployment was reported last week to be at an 11 year high at 10% in November, there a few signs that Greece will reduce their deficit any time soon, and an executive at Moody’s has now warned that Portugal is also at risk from a credit downgrade if it doesn’t produce the deficit-cutting budget it needs. Only events in the U.K prevent the Euro from further losses against Sterling, and if the likelihood of a hung parliament and a ratings downgrade reduces there could be losses against the U.K currency also. GBP/EUR trading tightly at 1.1113, EUR/USD 1.4480.
Andreasen questions Rehn on difficulties within eurozone
Quote of the Day
“One of the pleasantest things in the world is going on a journey.” – William Hazlitt
