Pound:
The pound recovered yesterday afternoon significantly against a basket of currencies including the Euro and USD trading up over 1% in a matter of a few hours. Sterling took full advantage of end-of-year flows in the last full trading day of the year amongst thin trading volumes (little market activity). Extremely small volumes of trades running through the FX markets helped exaggerate price movements and see an unusual spike in the pound against the Euro. This year, as we all know, has been a challenging one for the UK economy and our currency, with ongoing concerns over the government deficit and economic recovery. Sterling because of this, has only gained by 6% over the Euro since the all-time low of 1.02 seen on 30th December 2008. Whilst recent reports suggest the US economy has started to grow again, the UK is yet to officially emerge out of the slowdown fuelling doubts investors have over our economy. However, preliminary forth quarter GDP data will be published next month which should show the recession ended in the current quarter. This will certainly be refreshing economic news but will by no means remove ongoing concerns over the state of public finances and uncertainty surrounding the general election in the summer, creating a vulnerable period for the pound. I’m choosing the quiet option to celebrate a new decade and whether you are doing the same or the opposite, have a very prosperous and happy 2010.
US Dollar:
The Dollar weakened off against Sterling and the Euro last night and this morning with little data pointing to a technical move, with improved risk appetite from a rise in stock markets also cited as a contributing factor. The move was in tight ranges and will probably continue to be today as trading is expected to be extremely light the day before the New Year and trading holiday where most markets in the world will be closed. Kasper Kirkegaard, a foreign exchange analyst at Danske Bank in Copenhagen, noted, “It’s too early to dismiss the negative correlation between equities markets and the dollar, i.e., when risk appetite declines, that still seems to favour the dollar even though we’ve seen a slight decoupling from that in early December.” U.S Data of note today is Unemployment claims and Natural Gas Storage data due later. GBP/USD up to 1.6136, EUR/USD 1.4410.
Euro:
The Euro was up against Sterling and the Dollar after losing ground on GBP yesterday with the release of positive U.K house price data. A rise in stocks globally helped increase risk appetite amongst traders, leading to Dollar selling and Euro buying this morning. With bank holidays in German and Italy today, as well as in Asian countries, trading is expected to be thin so tight ranges are expected, any movement probably tied to the end of year correction of investor’s books. A trader in Frankfurt gives further explanation for the recent Euro strength against the Dollar: “There was talk that an Asian name bought large in Euro/Dollar in very, very thin liquidity and that pushed bid stops through in AUD and NZD”. GBP/EUR trading thinly at 1.12,
EUR/USD 1.4410
Quote of the Day
People are so worried about what they eat between Christmas and the New Year, but they really should be worried about what they eat between the New Year and Christmas. – Anon. WISHING YOU A HAPPY NEW YEAR