Pound:
The pound although trading in a quiet part of the year has stayed within similar ranges against the Euro and made some small gains against the USD at the same time as losing out against a strong “aussie”. The UK newspapers (in this subdued stage of the year) including the Telegraph, Times and Guardian have all been quick to report rather downbeat prospects for the UK economy and currency (sterling) in the coming year. The Guardian in an article by its economics editor Larry Elliot amongst many points has reported next year as another year of wage restraint, job insecurity and lower house prices.
In more specific news for the currency markets the Times and Telegraph highlighted a report by the CEBR that the pound could soon be trading below parity with the Euro due to the the “parlous state of Britain’s finances and the uncertainty over UK fiscal policy”. The Chief executive of the CEBR went on to highlight the severe situation our economy faces raising the point that any signs of the Labour party closing the gap on the conservatives as we head closer to the general election could result in sterling weakening further as concerns increase over the tackling of the current government deficit. Many leading economists have attacked the government for its “irresponsible” failure to set out a convincing plan to resolve the issue surrounding the public purse increasing chances of a downgrade of Britain’s sovereign debt rating from its current triple A status.
Housing equity withdrawal data just released came out less severe than the expected –6.3B at –4.9B. There is no UK data now until NYE when Nationwide release house price data.
US Dollar:
The Dollar maintained strength against the other majors this morning, its value against six other major units (the Dollar index) registering 77.712, up from 77.625 yesterday. The U.S Case-Schiller house price index for October and the Conference Board consumer confidence index for December are both due later today. If they meet or exceed expectations, the Dollar could receive a boost as further improvement in the U.S economy is suggested, fuelling expectations that the Fed Reserve may end its ultra low interest rate policy sooner than expected.
There still exists a view however that believes the Dollar still retains some downside risks. “The recent upward trend in the dollar looks a bit excessive,” Hideaki Inoue, chief manager at Mitsubishi UFJ Trust and Banking Corp said. “A self-sustaining U.S. economic recovery may still be distant as the country’s unemployment rate remains at a historically high level. There could be a correction in the dollar’s rising trend early next year, when many market participants resume trading”. GBP/USD 1.6045, EUR/USD 1.4427
Euro:
The Euro remained in tight ranges against Sterling and the Dollar this morning after thin trading over the holiday period. Problems in the Euro zone continued to peg the single currency back although the parlous state of Britain’s finances and uncertainty over UK fiscal currency meant the Euro could make a push on GBP in the near future. Positive U.S data has kept the Euro back over USD though, and will probably continue to do so as expectations of the next rate increase being in the U.S rather than Europe are at a high. The only euro zone data of note today is German Preliminary Consumer Price Index, giving an indication of inflation levels and any possible need for a rate increase. EUR/USD 1.4427, GBP/EUR 1.1120.
Quote of the Day
Pay no attention to what the critics say; there has never been a statue erected to a critic—Jean Sibelius. Happy New Year!