Pound:
Positive news and economic data for the UK economy continues to lift the pound in the short term. The pound has hit a one month high against the USD as Kraft Foods and Cadbury said they agreed a takeover of the UK confectioner for £11.7 billion seeing big flows into the UK currency. Sterling also rallied further against the Euro hitting a new four month high as investors became more positive over UK growth prospects and the single currency (Euro) continues to be hampered by Greek debt woes.
In other economic news Goldman Sachs reported that they expect the UK to post stronger growth in 2011 than any other major economy, increasing optimism surrounding UK recovery. Many investors believe the Bank of England will be among the last of the major central bank to raise interest rates as our economy slowly improves, however the latest stronger than expected inflation data, may well change this view in the coming months.
Investors have clearly been more drawn to the pound in recent weeks than other currencies as prospects for interest rate hikes rise. Recent gains could however be unsustainable as the market focuses once again on the dire situation with public finances and the threat of the UK losing it’s triple A status. Amongst all this positive news Fitch the credit rating agency stated that the UK’s goal of halving public sector debt in the next four years was “too slow”.
In more negative long-term news for sterling, Michael Hart at Citigroup said “the prospects for a rate hike in the UK is a reflection of negative developments rather than a sign of economic recovery, such rate hikes will ultimately not be supportive for sterling.” for now though the pound is benefitting. Mervyn King talks at 7pm tonight!
US Dollar:
The Dollar was down against the Euro and Sterling as news of the Cadburys takeover bid coming to fruition prompted risk appetite and Dollar selling. There was also further speculation that U.S financial sector earnings could be weaker than expected, something that is likely to damage U.S shares, weigh on long-term Treasury yields and knock USD. The Dollar was on the back foot against the Pound, as expectations of a $19 Billion influx of cash into the U.K economy from the Cadbury/ Kraft takeover bid was enough to prompt GBP buying this morning.
Citigroup Inc. Release their October-December earnings data later today, with Bank of America’s coming on Wednesday. If this data is weak, the Dollar could be put under renewed pressure. If Wall Street loses ground on any bad earnings, that “may increase downward pressure on the dollar,” said Yuki Sakasai, foreign exchange strategist at Barclays Capital. He said the earnings could be worse than expected because of slow funding demand in the U.S. GBP/USD 1.6410, EUR/USD 1.4390.
Euro:
The Euro edged higher against the Dollar and lost further ground on Sterling, reaching a 5 month low against the U.K currency. The Euro is expected to be under continued pressure until Greece’s fiscal condition becomes clearer. There were at least more positive comments on the state of the Euro zone by some: “The European Union appears prepared to go to the brink to force Greece to undertake a decisive fiscal adjustment.”If this doesn’t take place, we ultimately expect a rescue, by one way or another”, one investor argued. These sentiments may serve to hold back a burdened Euro from further losses against USD, but Sterling was steaming ahead against the single currency after Alistair Darling promised spending cuts and Kraft seem on the verge of a takeover bid for the U.K confectionary giant Cadburys.
Ongoing banking issues and fiscal problems in the Euro zone are expected to put further pressure on the Euro, and many traders see the single currency as bearish presently and capable of dipping even more. GBP/EUR 1.1397, EUR/USD 1.4390.
Quote of the Day
“Happiness walks on busy feet.” – Kitte Turmell
