Political concerns weigh Sterling down

The Pound has lost ground today as political concerns and the prospect of the Bank of England’s policy meeting later in the week weighed down Sterling.
 

Two UK opinion polls over the weekend showed a general election, which has to held by June, would result in a hung parliament.

This weighed on sterling since many believe that such a result would lessen the likelihood of the UK getting to grips with its rising budget deficit.

Meanwhile, traders were wary ahead of the result of the Bank of England’s monetary policy committee meeting on Thursday.

By midday in New York, the pound fell 0.9 per cent to £0.8740 against the euro, lost 0.1 per cent to Y144.21 against the yen and fell 0.6 per cent to $1.5902 against the dollar.

Meanwhile, the dollar hit a six-month high on a trade-weighted basis, consolidating sharp gains after US growth figures came in stronger than expected last week. 

The figures helped give the dollar an additional boost given that the US currency was already benefiting from increased risk aversion.

Safe haven demand for the dollar was boosted as fears over Greece’s fiscal position and concerns over continued Chinese monetary tightening weighed on risk appetite and global equity markets.

The dollar index, which tracks its progress against a basket of six leading currencies, rose to a high of 79.534, it highest level since July 30. The dollar also rose to a six-month peak of $1.3850 against the euro before paring some its gains to stand down 0.3 per cent at $1.3905 and climbed 0.5 per cent to Y90.77 against the yen.

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US Greenback ends the year on a high

As we enter the last full trading day of the year, the Greenback has strengthened and trades below 1.59. 

Yesterday's US consumer confidence showed a figure of 52.90 against an expected 53.0, but still up on November's figure of 50.6. On the back of this data the dollar moved over 1.60 but shifted back towards 1.59 levels soon after as thin market trading continued.
 

German consumer price index figures released yesterday afternoon added support to the euro as we saw an increase to 0.8% from an expected 0.7%, up on last years 0.3% and euro/GB Pound fell below 1.11 where it is trading this morning.   

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Euro even weaker than Sterling

The euro has again moved lower against the majors and in particular against the US Dollar moving down to 1.4523 overnight and overall down 500 points from recent highs. 

The cause of the downturn has been attributed to the recent jitters in Greece and more recently in Austria. 

The Greek prime minister commented yesterday that Greece does not have much time and must take tough decisions within the next three months- decisions that have been left for decades.  

In a very direct address he stated that “we must change or sink” and vowed that he will tax the bonuses of Greek bankers by 90%- move over Alistair Darling!

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What will the impact of the situation in Dubai be?

Well so far, nobody is really sure. Given that both Abu Dhabi and the UAE Central Bank have quickly come forward to assure markets of their support for the beleaguered Emirates State, then the financial impact should be quite minor. 

Certainly, there will be repercussions for Western lenders and there is no guarantee that Dubai’s ‘fairy godmother’ will stand behind its liabilities carte-blanche but equity markets are viewing the situation as containable.

The potential problem is any growth in concern over global Sovereign stability and the fact that CDS spreads have continued to widen suggests that even though things look calm on the surface, there is a lot of thrashing about below the surface. 

If things do begin to look a little dire, then expect the Dollar to come back into focus as risk aversion trades re-emerge.

Despite markets starting to draw their horns in for the run up to Christmas, there might be just time for one more spate of trading especially if the support for Dubai offered from the UAE Central Bank is less rather than more. 

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Relatively quiet week on the forex data front

A week of choppy trading after a slew of important economic releases left GBP/USD modestly higher by the end of the week.

Overwhelming evidence that inflation pressures have eased in the UK economy kept Cable grounded, with PPI showing that input prices plunged 2.0 percent on petroleum product costs, while output prices jumped 0.3 percent as producers worked to boost profit margins.

Meanwhile, CPI fell materially lower at a rate of -0.8 percent, dragging the annual rate down to 2.7 percent - well below the critical threshold of 3.1 percent that would have prompted a warning action to UK parliament from BOE chief Merve ‘the Swerve’ King.

With interest rates in the UK and US at parity at 5.25 percent, Cable trade may remain turbulent as economic data from both countries gives neither bank the impetus to adjust monetary policy in the near-term.

The minutes of the February BOE MPC meeting will likely earn most of the attention for the week, as the market will look to the voting record for the committee’s bias on policy. Mild wage growth is likely to keep hawkish impulses in check.

After a quiet start to the month last week’s blitz of data finally created some action in the currency market. Unfortunately for greenback bulls, the majority of data was dollar negative.

For the week the EUR/USD gained 104 basis points as US economic condition clearly deteriorated. Specifically US Trade deficit widened to -$61B while the TICS inflows shrank to a miniscule $15B. No matter how you sliced it the balance sheet news was horrid.

The rest of the data was hardly inspiring as well with Retail Sales printing weaker than expected and weekly jobless claims jumping a very hefty 43k more than forecast.

In short the news suggests that US economy is slowing rapidly and if that trend persists dollars woes may only be beginning.

Next week the action once again slows to a crawl with only the CPI and Fed minutes to occupy the markets. We may again begin to trade in a narrow range but for now the bias in the greenback is to the downside and the onus is on the dollar longs to prove the market wrong.

Last week’s calendar in the Euro-zone was relatively subdued and EURO strength came from USD weakness rather than its own data. Both the Trade Balance and the ZEW missed estimates, but not by much. More importantly the EZ GDP was revised to 3.3% from 3.0% original estimate.

Next week the Euro-Zone calendar is also barren with one exception. The German IFO survey is due to be released on Friday night and is likely to be the marquee event of the week.

The market is looking for a small drop to 107.5 from 107.9 which if accurate, should not dent the unit much; IFO has hovered near record reading for most of the past year and has been one of the primary foundations for EURO strength. If it does not change much the unit is likely to remain well supported.

However, if the survey registers a massive drop due to the concerns over VAT, the EUR/USD could tumble hard.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.