Foreign Currency News Updates

Pound:
The pound has strengthened against the majors this morning after news yesterday that our trade deficit improved slightly and retail sales continue to impress. The pound has also taken full advantage of the National Institute of Economic and Social Research comments that Q4, 2009 GDP data will be positive and show that the UK has finally climbed out of the recession. Sterling has also been given support by one of the nine MPC members at the Bank of England who confirmed that the central bank was close to holding back to see the impact, stimulus (QE aid) has had on the economy. This provided indications to the market that the BoE will pause its QE (money printing) programme in February with inflation staying stronger last year. “At some point you have to say we have increased the amount of stimulus enough,” he said in an interview in Wednesday’s Guardian newspaper. “It doesn’t mean you are going to withdraw it, but you don’t have to keep adding to it.” I don’t want to sound to negative here for all you sterling sellers concerns persist over the vulnerability of the pound to less favourable economic news and concerns over public finances and the political landscape.

In the most up-to-date economic data this morning, manufacturing production failed to impress coming in under expectation at 0.0% although industrial production came in slightly higher than the 0.3% forecast at 0.4%, providing mixed readings for the economy. As always be prepared for the chance that the pound’s recent strength will be short-lived. Have a great day even if it is in the snow…

US Dollar:
The Dollar was up against the Euro this morning but couldn’t hold back the strength of Sterling as it received a boost against the majors. Hawkish remarks from Fed Reserve Bank of Philadelphia President Charles Prosser helped boost expectations of a rate increase as he said “an increase in rates must occur well before the unemployment rate or other measures of resource slack have diminished to acceptable levels.” Commodity currencies were also pushed down after China said it would raise its currencies’ reserve requirements. Investor sentiment was damaged by these comments prompting players to buy back into the Dollar, helping it push up against the Euro. Many investors still believe the U.S economy isn’t strong enough for a rate increase any time soon though, so traders are still holding back from supporting the Dollar fully. Eyes will also be on how the auction of 10 year U.S treasurys at 18:00 GMT fares, with any decline in demand putting further pressure on USD by suggesting weak non-U.S investor appetite. The Dollar was pushed back by GBP as it outperformed its rivals after positive U.K data was released. GBP/USD 1.6245, EUR/USD 1.44492

Euro:
The Euro was down against the Dollar and Sterling this morning but remained in tight ranges as trading was again thin at the start of this New Year. As China took the move to rein in excessive credit creation and raise its yuan reserve requirements, the subsequent fall in stocks and bonds pushed the Euro down as risk sentiment again came into play and investors bought into the safer bet of the Dollar and out of the Euro. Investors now weigh the further implications for risk taking after China’s tightening. “Any perceived tightening from China could be a concern for the global growth picture, so that’s probably weighing on demand for risk”, said Brian Kim, a currency strategist at UBS AG. The current trend could be reversed if risk sentiment comes back into the market, with eyes on the release of German gross domestic product data, as well as industrial production figures for the Euro zone to provide an argument for Euro strength if positive. The Euro was held back by GBP as positive U.K data including better than expected retail sales in December boosted Sterling against the Euro. GBP/EUR 1.1199, EUR/USD 1.4492

Doug Casey – “I am absolutely convinced the Euro is going to fall apart”.

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