US Dollar:
The Dollar took a knock this morning after comments over the weekend from St Louis Federal Reserve President James Bullard that he would prefer to keep the Fed’s asset-buying program active beyond its current cut off date. USD was hit further when some of the most accurate forecasters of the U.S currency predicted that the world’s reserve currency will continue sliding, even when the Federal Reserve begin to raise interest rates, which policy makers say is an ‘extended period’ away. Scotia Capital Inc, HSBC Holdings Plc, Aletti Gestielle SGR and Standard Chartered Plc all believe the dollar will depreciate as much as 7.1 percent against the Euro. They agree that a record $4 trillion of government bond sales between 2009 and 2010, the world’s lowest borrowing costs and $12 trillion of fiscal and monetary stimulus will continue to weigh on the currency, as well as the high unemployment rate and any similar signs that show a longer economic recovery. It is widely believed, looking at historical data, that the dollar should strengthen more significantly only 12 months on after the Fed raise interest rates. GBP/USD currently up to 1.6584, EUR/USD 1.4973.
Pound:
Sterling is again trading lower this morning at 1.1067 against the Euro and 1.6580 vs. the USD. Global stock markets could be hit hard this week as markets become more concerned over the possibility of a “double dip” recession and prepare for important US data out tomorrow in the form of preliminary GDP and consumer confidence data. This data is likely to dictate the popularity of sterling as any poor US economic data could see a shift towards risk aversion and selling of riskier currencies. We also have key data for the UK on Wednesday with the release of revised third quarter GDP (growth) data expected to be improved from the –0.4% preliminary figure to –0.3%. This will show the UK was still in a recession last quarter but with reduced severity. There is no UK data out today which could explain why sterling is continuing to trade lower against the major currencies with little support and a continued “hangover” from higher public sector borrowing data released last Thursday.
In more positive data for the UK the business confidence monitor climbed to 24.6 for the fourth quarter. This was the highest reading since the readings began in 2003 which has helped fuel expectations for growth data to be positive in the quarter we are currently in. Michael Izza, chief executive of the ICAEW (Institute of chartered accountants) who released the data, said: “The recovery is very fragile and will take time. Tightening of fiscal policy, the return to the 17.5 per cent VAT rate, continued difficulties accessing finance and a budget Christmas by consumers are all potential threats to this recovery.”
Euro:
Whilst the Euro stands strong in the face of the depreciated dollar this morning, there is expectation that without some serious numbers in euros favour it will struggle to push through 1.50 against the dollar. The single currency is expected to rally against the dollar however until the end of the year, as the risk appetite of traders may increase next week. There is some talk about the movements leading up to the year end, but long term investors don’t usually close out positions until the third week of December. The Euro has also received some support from ECB President Trichet’s comments last week as he said financial institutions ‘must act now to ensure a future removal of central-bank support can be managed without painful withdrawal symptoms’. He also pledged to unwind ECB stimulus for the Eurozone economy in a ‘timely and gradual fashion’. This didn’t help the Euro against sterling this morning however, as traders looked to sterling for gains after the poor show from the dollar this morning. GBP/EUR currently 1.1071, EUR/USD 1.4973.
Quote of the Day
“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young.” – Henry Ford