US Dollar:
The Dollar maintained its strength against Sterling and remained in tight ranges against the Euro this morning as investors have finally seemed to made up their minds that the U.S is leading others out of the recession. A surge in Dollar buying yesterday helped the currency consolidate its gains over the other majors, with year end considerations and an expected U.S interest rate increase cited as the contributing factors. Generally stronger U.S data and problems in Dubai and Greece have also helped in boosting the greenback.
The risk of any further disruption to global financial markets could also actually help the Dollar, especially given the rising concern over banks and bond markets in the Euro zone. Investor sentiment has embarked on a shift after the U.S Fed Reserve has acknowledged the recent steady improvement in U.S economic data and confirmed that it is ready to start unwinding the loose monetary policies it has in place to fight the credit crisis. GBP/USD down at 1.6208 and EUR/USD coming back but staying low at 1.4396.
Pound:
The pound is continuing to trade in the middle area of 1.12 against the Euro slightly down from 1.1283 seen overnight. Against the USD sterling is trading down on the day from 1.6247 back into the high end of 1.61 as the market digests public sector borrowing data which highlighted the size of the UK government deficit.
Sterling fell a little yesterday after weak UK retail sales data suggested consumer demand remained on the slow side helping keep economic activity to a minimum. Public sector net borrowing data released at 9.30am (monthly) came in under the 23.1B expected at 20.3B but is double last month’s figure of 10.2B nonetheless, the government is quite clearly spending far more money than it’s making in taxes.
In other UK economic news, money supply data was down from the 1.4% forecast at 0.0% showing no change in the total quantity of domestic currency in circulation and deposited in banks, highlighting less support for economic activity.
In some positive news for the economy (I do have some under my hat!) business investment data improved to –0.6% from the more severe forecast of –2.8% showing an increase in the value of capital investments made by businesses. For those who are wishing to sell the pound, now in my opinion remains an interesting prospect in the short term as things are likely to get worse for the pound before they get better. We can’t avoid the economic outlook for the UK and the state of public finances. There are benefits a weak pound is likely to bring in the short to medium term before we get on the move again with interest rates and the UK becomes once again an attractive place to invest in. “The rebound we’ve seen in sterling looks to be a bit of a corrective move, with most markets starting to rebound, but the overall picture is negative for the currency, the focus is very much on the fiscal position and there is a lot of potential for sterling to come under pressure on the back of these numbers,” said Ian Stannard, currency strategist at BNP Paribas.
I’m off to the my very first 30th (oh no it’s getting close) birthday party in London tonight before I head east to watch my team West Ham beat Chelsea on Sunday, and if that doesn’t happen I always have Christmas carols to look forward to at the Royal Albert Hall on Thursday night, have a great weekend!
Euro:
The Euro attempted to claw back some of its losses against the Dollar this morning, while still maintaining losses against Sterling. It is an uphill battle currently for the single currency though as doubts over banks and markets in the Euro zone, as well as the downgrading of credit statuses in Greece and Spain continue to work against the currency.
Sterling remains steady against the Euro with yesterdays boost from encouraging UK employment data continuing. Some investors tried to lift the common currency to keep their contracts profitable, but traders said the unit’s downtrend is still intact. Hideaki Inoue, forex manager at Mitshubishi UFJ Trust and Banking said: “The Euro has long been bought on the view that it could be a potential replacement of the dollar as a reserve currency. But with the U.S economy improving (and with signs of worsening public finances in the euro-zone) investors are now asking themselves why have they been so bullish on the Euro?” EUR/ USD 1.4396, GBP/EUR 1.1259.
Quote of the Day
Everyone thinks of changing the world, but no one thinks of changing himself – Leo Tolstoy, 1828-1910, Russian Novelist & Philosopher