US Dollar:
Recent dollar strength against the euro is expected to be short lived as long term sentiment suggests investors will continue to sell off the greenback as the Fed continue their stance that rates in the U.S must be kept low to boost economic growth. Recent data from the Bureau of Labour Statistics highlighting the jobless rate rise of 10.2% backed up this position, as well as a recent report suggesting that the dollar may still be overvalued. All should contribute to a weakened dollar against Euro, with the midterm view the same against the pound, if stronger retail data in the U.K can help sterling rise above the recent weakness felt as a result of questions surrounding the U.K’s sovereign status emerged. The general view on sterling against the dollar is bearish however, with little sentiment on a swift recovery to the economy. There should be little movement on the dollar on Wednesday due to Veterans Day as trade volume should be thin as a result of the closure of the U.S bond market. GBP/USD slips down this morning slightly to 1.6647 on the back of the AAA status news in the U.K, while USD loses less ground against the EURO as EUR/USD stands at 1.4981 currently.
Pound:
Sterling is trading down this morning despite stronger retail sales and house price data. The pound has moved down over 40 points against the Euro and over 70 points against the USD since yesterday’s close. Fitch credit rating agency in the US commented that the UK is “most at risk to lose its AAA sovereign status among major economies”. This again puts our economy under the spotlight and even the prospect of the UK being downgraded will deter investors from putting funds into the economy and seeing sterling purchased. This is because any downgrading will increase risk making the UK a country less safe to invest in. This news contrasts with another credit ratings firm, Moody’s who commented that UK ratings will not be under pressure until 2010 at least. Despite this overall bad news for the UK economy, fundamental economic data released overnight has been strong. Starting with retail sales according to the BRC (British Retail Consortium) the value of goods sold on the high street surged at an annual rate of 3.8%, the biggest rise in like-for-like sales for October in seven years and up from 2.8% seen in September. This data is sending out an encouraging message that spending in the run-up to Christmas could help drag us out of a recession (jury still out on that one!). In other good news UK house price rises actually occurred in areas not just in London (for October) as the residential property market continued to pick up according to the RICS (Royal Institute of Chartered Surveyors). The data showed 34% of surveyors in October saw prices up against 21% in September. We are also due more economic data this morning on house prices from the department for communities and local government (DCLG) in addition to the trade balance data (import vs export numbers) expected to be improved slightly at –6.1B. As I perhaps annoying keep going on about don’t forget the BoE quarterly inflation report due out tomorrow at 10.30am in addition to the latest unemployment figures.
Euro:
The Euro found strength against sterling and the dollar yesterday as unexpectedly strong data from Germany was released. There was warning however that an overvalued Euro was counter to growth and demand for German goods would fall if the Euro strengthened further. A sharp fall in the pound had already dragged the Euro down this morning, after remarks from Fitch Ratings suggested the U.K is most at risk of losing its AAA sovereign status out of all the major economies. The impact to the market should die down however, as tough U.K fiscal conditions are already well-known by dealers who think that a U.K downgrade is unlikely in the future. This should correct the pound and Euro in line with it in the near term. The Euro lost ground against the dollar as well this morning, but the market expects losses to be regained as the USD continues to be sold with no suggestions rates will be increased any time soon. GBP/EUR is down to 1.1107 currently on the back of the credit rating news in the U.K, while EUR/USD also slips to 1.4981 at time of writing.
Daily Quote
“Just living is not enough. One must have sunshine, freedom, and a little flower.” – Hans Christian Anderson