US Dollar:
The Dollar strengthened against the Euro and Sterling today as the possibility of a seasonal surge on the currency by traders closing their books for the year remained. There are indications investors are pondering locking in their profits before the end of year and in some cases the coming U.S Thanksgiving holiday this Thursday. As U.S equities and oil prices have taken a knock recently, traders are more cautious about investing in riskier, higher yielding currencies such as AUD, NZD or CAD, and these currencies showed today their gains over the dollar were limited. The outlook on the dollar remains bearish however, as the general picture is that the Fed are unlikely to raise interest rates any time soon, and U.S government yields remain low.
Investors will look to the raft of U.S data including GDP, consumer confidence and FOMC minutes before the U.S holidays that will indicate where traders put their money and which currency will benefit, although dollar weakness is perceived as most likely. GBP/USD down to 1.6526 currently, EUR/USD 1.4920.
Pound:
Sterling is trading around the same level as yesterday’s close against the Euro and is down around 60 points against the USD. Yesterday’s lack of UK economic data did little support the pound as we draw closer to Wednesday’s key revised GDP (UK growth) number for the last quarter. There is however economic data out this morning to keep the market interested before this crucial data with mortgage approvals (expected up from 42.1K last month to 44.0K), preliminary business investment (both at 9.30am) and the BoE inflation report hearings. The business investment reading for the last quarter is expected to show a vast improvement from the previous quarter at –3.5% compared to –10.2%, so if this data is released in line with expectation this will indicate improved economic health. The delivery of inflation report hearings by the BoE governor and other MPC members is also one to watch out for at 9.45am as this latest news will provide the market with further information on the economic outlook for the UK and inflation. Mervyn in particular may even make direct comments on the currency markets themselves which (as we have seen before) could “rattle” the pound once again. Our friend Mervyn King will also be speaking again this afternoon (hope they keep his glass of water full!) at 3.30pm when alongside the deputy governor they testify on the inflation report before the house of lords and economic affairs committee. If there are any indications of interest rate rises in the future through a “hawkish tone” sterling is likely to receive a boast. Expect volatility leading up to GDP tomorrow at 9.30.
Euro:
The Euro was down against the dollar this morning as gold prices fell from their highs. Although the dollars outlook was on the downside, the euro is continuing to struggle passing the 1.50 level with traders seeing a decisive push over this rate unlikely in the near future. There was improvement against sterling however, as euro zone manufacturing data was encouraging, but not substantial enough to lend full support behind the single currency. German GDP data and Ifo business climate should show growing confidence in the revival of the euro zone economy and eyes will be on these, and other euro data to prompt a move in the currency. Volatility in this, as well as the dollar is expected in the run up to the U.S holidays and end of year as traders could close out positions on riskier yields such as the euro and sterling, or hold strong with dollar investment if global data is worse than expected. GBP/EUR currently in Euros favour at 1.1079, EUR/USD shows dollar strength at 1.4920.
Quote of the Day
“Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.” – Goethe