The UK sees promising UK retail sales figures as it continues to benefit from safe haven flows

Tom Tong16/Dec/2011Currency Updates

EUR

The Euro rose against the Eollar and yen this morning in Asia but traders said the moves are due to year-end position adjustments and any gains should be short-lived. While investors remained pessimistic about the outlook of European debt problems and the common currency, they have started to prepare for the year-end holiday season. Traders said their adjustments were mostly squaring stocked-up dollar-buying, euro-selling positions. The struggling euro-zone economy is getting an unintended benefit from the region’s escalating debt crisis, as the recent sharp drop in the value of the Euro against other major currencies stimulates its exporters, limiting the severity of the downturn gripping the 17-member currency bloc. The likely lift to exporters comes as the Euro zone, though likely in the early months of a mild recession, avoids the kind of steep plunge in output that plagued the global economy in 2008 and 2009. That could limit the scope for the European Central Bank to embark on more radical steps, including large-scale asset purchases known as quantitative easing.

GBP

The Sterling inched higher against the Euro on Thursday, hovering close to a near 10-month high hit in the previous session, and looked likely to benefit from any further signs that Euro zone policy makers are struggling to tackle the region’s debt crisis.

Strong UK retail sales data for November helped strengthen the Sterling

Despite a worse-than-expected month-on-month decline of 0.4 percent, analysts said the underlying trend was surprisingly robust as previous months were revised higher.

Some market players have predicted more gains for sterling against the Euro in coming weeks as investors opt for the relative safety of UK government bonds over Euro zone assets.

Nonetheless, Jane Foley, a senior currency strategist at Rabobank, said that sterling was benefiting from some safe haven flows out of the Euro zone as investors were likely to be unsettled by poor UK fundamentals, meaning any upside could be limited.

Any signs of dissent among members of the ruling coalition after Conservative Prime Minister David Cameron vetoed proposed EU treaty changes last week, to the dismay of many of his Liberal Democrat partners, could also weigh on the pound.

USD

The Dollar held onto losses versus the majority of its-most traded peers amid data that suggest the U.S. economy is gaining momentum, easing demand for haven assets.

The Australian Dollar today recovered some of the broad losses of this week, rising to just below parity with the US greenback, helped in part by positive US employment data.

“The U.S. economy has certainly been pretty stable for several months,” with recent demand described as “excessive” by RBS’s Gibbs.

The U.S. data supported some risk-taking sentiment today, but we’re still walking on thin ice as bad news from Europe may come out anytime,” said Lee Jung Hyun, a Seoul-based currency dealer at Industrial Bank of Korea.
Emerging-market currencies rebounded Thursday after stronger-than-expected U.S. economic data boosted sentiment, though analysts warned that such rallies could be short-lived.

Supporting commodity prices and risk appetite generally, the number of US workers filing new applications for unemployment benefits fell to the lowest level in three-and-a-half years last week.

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Written by Tom Tong

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