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Sterling / Euro
The pound slid further against the euro yesterday as the gloom surrounding the UK’s economy takes it toll on sterling. Sterling was hit following Bank of England policymaker Andrew Sentance contradicting the central bank’s own inflation report by predicting that the UK recession would be as long and deep as the previous three major postwar downturns in the mid-1970’s, early 1980’s and early 1990’s. Sterling was also pressured by official figures revealing that industrial output fell 1.7% in October – the biggest monthly fall in nearly 6 years. The euro was boosted by ZEW releasing a better than expected survey within Germany in the morning.
There are no major economic announcements due in the EU or the UK today.
House View:*
Sterling negative
Sterling / US Dollar
Sterling weakened against the dollar yesterday following negative UK retail sales data and house price surveys, coupled with the news that British producer prices fell further in November. This contributes to the view that there will be further interest rate cuts by the Bank of England next year. Additionally, the FTSE 100 fell by 1.3%, which tends to result in the pound weakening. Sterling was beginning to strengthen slightly with news of the US bailout of the big three automakers, however this was short lived due to fears of a deepening global recession.
This morning the pound strengthened against the dollar, reaching a high of 1.4864 and a low of 1.4738. There will be several significant announcements from the US today, including mortgage applications data that will show the strength of the US housing market, and the Financial Management Service will be releasing their monthly budget statement which will indicate the financial activities of Federal Reserve banks, disbursing officers and federal entities. It is expected that this figure will be negative, which would show that the US government debt is bearish (negative).
House View:*
Dollar positive
Euro / US Dollar
The euro retreated against the dollar yesterday, despite ZEW releasing a better than expected investor confidence survey within Germany. Caxton FX anticipates that despite better than expected news being released, investors will remain cautious over heavily buying the single currency as the European Central Bank continues to cut interest rates in the new year. The downside for the euro may be curbed considering that the Fed are expected to cut interest rates next week.
There are no major economic announcements due in the EU today, whilst within the US wholesale inventories data is released this afternoon and the monthly budget statement is made this evening.
House View:*
Dollar positive
Rest of the World
AUD: The Australian dollar initially lost ground against sterling yesterday, however eventually strengthened late in the day after another raft of weak UK economic data. Data showed steeper declines in both manufacturing and industrial production for October, while a large trade gap revealed exporters were not benefiting from the depreciation of the pound. Sterling weakness was compounded by comments from a BoE policymaker which increased speculation that further hefty rate cuts were likely in the coming months. While the outlook for sterling generally remains bleak much of the bad news has been priced in. Therefore in volatile trade there could be short term spikes as major governments’ stimulus packages gradually help equity markets recover.
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NZD: The New Zealand dollar fell off recent highs against sterling yesterday, as mixed results in equity markets kept investors wary of taking on too much risk. Investors are likely to await an actual announcement of a rescue package for the US auto industry before taking on extra risk. Another bout of poor economic data overnight again brought people back to the gloomy outlook for the global economy.
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*PLEASE NOTE: The House View is generally taken as a medium to long term view, with a time frame of up to 6 months. Short-term fluctuations may well occur. Nothing in this email constitutes advice nor is it intended as a solicitation for funds or recommendation to trade. |
