Pound:
The pound has regained some strength against the USD this morning after weaker non farm payroll (employment) data weakened the USD. Against the Euro we are trading within similar ranges as Friday, within 1.11, as investors remain wary of the UK’s mounting public debt burden and weak economy, in additions to concerns surrounding political uncertainty. Sterling is unlikely to outperform, if we get any bad news, euro/sterling will weaken,” said Paul Robson, currency strategist at RBS in London. Economists said economic and political issues are likely to keep the pound low particularly against the Euro in the coming months with any gains likely to be small and short-lived. Although political uncertainty was “cooled” a little last week after the latest poll suggested a majority win for conservatives the possibility that no party will win an overall majority could leave the government struggling to sort out the current financial mess. Speculators are continue to bet against the UK currency with some economists expecting the pound to test parity (1 for 1) against the Euro. There is no data due until tomorrow for the UK with the release of retail sales, trade balance (difference between imported and exported goods) and the RICS house price index.
US Dollar:
The Dollar was down against Sterling and the Euro this morning as the prospect of the Fed maintaining a loose monetary policy was priced into the market. U.S Fed Reserve President for St Louis, James Bullard reiterated that U.S interest rates may remain low “for quite some time”, calling the markets focus on interest rates “disappointing”, saying that “markets should be focusing on quantitative monetary policy rather than interest rate policy”. As well as these comments, worse than expected U.S jobs data on Friday prompted investors to scale back their expectation of a rise in U.S interest rates, buying higher yielding currencies outside of the USD. This put pressure on the greenback this morning, as it lost 2 cents on GBP and EUR. “It all boils down to interest rates and everyone is very confused about how fast the Fed will raise rates,” said Kathy Lien, a director of currency research at GFT Forex in New York. “Comments from Fed officials indicate that despite what the market wants to believe, the Fed is in no rush to raise rates.” “Investors are paring back some of their overly optimistic views that they had on the U.S. economy towards the end of last year,” said Joe Manimbo, a currency strategist at Travelex Global Business Payments. Comments by Federal Reserve Bank of Boston President Eric Rosengren on Friday also reinforced the view that U.S. rates may remain longer to help bolster the economy. “We do want growth that is more rapid” than currently expected, he said. “So I think it’s perfectly appropriate to keep monetary policy accommodative until we get enough growth, until the economy becomes more self-sustaining.” GBP/USD up to 1.6115, EUR/USD 1.4514 currently.
Euro:
The Euro was up against the Dollar and marginally against Sterling this morning as markets cooled off expectations of U.S interest rate increases on the back of Fed Reserve James Bullard’s dovish comments and poor U.S unemployment data. At one point a three week high was achieved by the single currency against the Dollar, reaching 1.4533. Momentum was lost slightly after Bullard later said the U.S isn’t likely to change its policies on the back of the poor Jobs data, but the Euro remains on the front foot against the Dollar.
The Euro faces its next key resistance at its Dec 16 high at 1.4591. A breach of this level may set the stage for a Euro short-term rally. The Euro made little movement against Sterling, advancing slightly but held back from any real gains as investors sold off the Dollar and bought into both the higher yielding GBP and EUR for short term gains. If the Conservatives look likely to win a majority in the upcoming election, GBP should receive a boost against the Euro. EUR/USD 1.4514, GBP/EUR 1.1117.
Quote of the Day
“If we are facing in the right direction, all we have to do is keep on walking.” – Buddhist Proverb
