Nationwide consumer confidence data lower than 72 forecast at 69

January 6th, 2010 by Toby

US Dollar:
The Dollar was down marginally against Sterling and the Euro this morning as rising commodity prices and recent strong U.S data encouraged purchases of higher risk currencies and the selling of the Dollar. Margins were still tight and little solid movement is expected before the U.S non-farm payroll data on Friday or possibly preliminary indicative data preceding this on Thursday. There was however evidence traders were more willing to take risks away from USD into GBP and the Euro. “The (global) economy is in a recovery phase with solid crude-oil and gold prices, encouraging long-term players to buy riskier units,” said Akihiro Tanaka, a senior trader at Resona Bank.

Automatic Data Processing, a U.S company handling the payroll data release employment change data today and if the numbers are better than expected, pushing up long-term U.S Treasury yields, we could see Dollar strength. At present USD is trading at tight ranges, GBP/USD 1.6027, EUR/USD 1.4355.

Pound:
The pound has regained some of it’s recent loses against the Euro in early morning trading hitting a high of 1.1202 before falling back into the higher end of 1.11, but still higher than yesterday’s close. Against the USD we have seen a small amount of strength with the rate moving back up above 1.60 earlier this morning.

In economic news UK consumer confidence (released overnight) fell in December by the most in more than a year as expectations for a rapid return to economic growth deteriorate. The BRC shop price index came in stronger from the 0.2% seen in November to 2.2% in December as food and non-food prices picked up sharply.

This morning has recently seen the release of service sector data which is continuing to highlight expansion in this area of the economy (any number above 50) coming out at 56.8 against 56.7 forecast. Tomorrow’s main economic data release comes from the Bank of England who is due to announce the latest decision on interest rates and quantitative easing. Expectations are for no rise in rates from the current level of 0.5% as economists wait for the first round of GDP data (later this month) expected to highlight that last quarter (Oct-Dec 09) the UK exiting a deep and longlasting downturn. The BoE is also expected to continue pumping money into the economy up to the current level of £200 billion in an attempt to boost bank lending. The market is likely to move it’s focus to February’s BoE meeting as 2010 starts to kick in, in addition to this date coinciding with the BoE’s next quarterly inflation report. Some economists have also signalled for this to be the end of the “money printing programme” before assessments are made on economic recovery without government aid.

Euro:
The Euro was marginally down against Sterling and up against the Dollar this morning as traders looked to European currencies away from the Dollar with the market’s risk tolerance increasing of late. The Euro was held back from further gains though and in check against Sterling as European Central Bank executive board member Juergen Stark said that the European Union won’t save Greece from its debt problems. The fiscal conditions in the Euro zone and uncertainty over sovereign statuses of other European countries continue to weigh on the Euro, although it rose against the Yen with Japanese Finance Minister Hirohisa Fujii appearing to step down. As a result we may see investments come out of Asia into Western markets, although whether Europe is as attractive as the U.S and the U.K will depend on investor’s expectations of a Euro zone recovery, as well as the risk factor and possibility of higher yields in Europe. U.S payroll data is still the big data release this week and any related data preceding it, so until then the Euro trades in tight ranges against Sterling and the Dollar, GBP/EUR 1.1163, EUR/USD 1.4355.