US Dollar:
The Dollar continued to trade in tight ranges against other majors this morning. A brief reprieve to recent Dollar strength against the Euro and Sterling is expected to be short lived, as optimism that the U.S recovery will accelerate into next year should continue to underpin buying interest in the greenback. The first batch of disappointing U.S economic reports recently has been on the whole taken by investors as an excuse to record profits on its steep run-up over recent weeks. The data shouldn’t purposefully damage the market’s newfound optimism about a broader U.S recovery. Some unemployment claims and goods orders data is the only data of note in the U.S released today, with positions still being closed out to boost the Dollar before the New Year. GBP/USD 1.5983, EUR/USD 1.4354.
Pound:
The pound is continuing it’s subdued tone this morning before Christmas, trading into a week low against the Euro and near multi-month lows against the strong US dollar. The Bank of England minutes did nothing to excite the market over the pound yesterday and instead left many market participants to continue pondering over what our central bank will do next, especially with regard to QE (money printing). The BoE minutes released yesterday morning were seen as leaving the door open to a further expansion of its asset buying programme. In the minutes, the MPC (rate setting committee) said it was difficult to identify with any certainty whether the economy had turned in addition to providing mixed news by stating there had been both positive and negative developments.
Money supply growth (amount of money available in the economy at a particular point in time) was highlighted as being disappointing despite the £200bn that has been fed into the banking system. Many economists expect the QE programme will not be expanded beyond this level but this is by no means a “done deal” and another increase in February remains a possibility.
The MPC highlighted “There were exceptional uncertainties over the outlook for inflation and activity growth which would only be resolved over time”. Some economists are forecasting interest rate rises by the final quarter of 2010 which will no doubt support the pound longer term. It seems clear for the time being that the strategy of creating a cheap currency to help restore UK domestic growth is continuing to be adopted by the BoE and in my view we are still due further shocks in UK house prices in 2010.
I’m off carol singing at the Royal Albert Hall tonight (and no I can’t sing) turning down my mates choice of talking nonsense in our local pub all evening. Have a great Christmas.
Interview With Andrew Marr
Euro:
The Euro traded in narrow margins against other currencies including Sterling and Dollar as trading was winding down for the holiday season. Problems in Europe with Greece’s credit status downgrade and Austrian financial concerns continue to put pressure on the single currency, especially against the Dollar whose performance could improve even more if U.S durable goods orders beats expectations and long term interest rate expectations increase. Sterling was held back this morning from any recent gains against the Euro as uncertainty remained in the U.K economy after MPC minutes confirmed an expected interest rate hold for a ‘considerable period’. Current rates should hold into the New Year as trading is thin with many taking a well deserved break to enjoy Christmas with loved ones. GBP/EUR 1.1129, EUR/USD 1.4354.
Quote of the Day
To lead others, embody their ideals! – Leonid S. Sukhorukov. Have a great Christmas and Happy New Year!