World subdued with Italian auction looming

Tom Tong28/Dec/2011Currency Updates

GBP

With the current Euro crisis continuing just across the border, investors are viewing the UK as a safe haven within which to invest. As a result, fears have risen about the how strongly the Sterling may appreciate in value, giving rise to concern about the competitive nature of British exports and the British Balance of Trade. In a response to such worries, the Bank of England is considering the implementation of Capital Controls on the Sterling, to minimise levels of appreciation. This can also be seen as a response to the Swiss Franc which is pegged against the Euro, also to avoid uncompetitive exports.

EUR

Due to the Christmas holidays, trading of late has been particularly thin. However, the Euro is at almost its lowest level since January against the USD as concerns over the the Europe debt crisis lingers. As investors look for safer assets, similarly to the USD, the JPY has advanced against its counterparts in light of this. The Italian bond auction today is critical as a negative result may deepen doubts about Italy’s funding abiltiy which will weigh heavily on the Euro. With a recent Bloomberg report highlighting that business confidence in Italy fell to its lowest level in two years, the markets doesn’t appear to be satisfied with the proposed solutions. The major theme going into 2012 will be the Eurozone still with all eyes watching the results from today.

USD

USD remained unchanged yesterday as data showed consumer confidence rose in December to its highest in 8 months. This news backs the debate that the world’s biggest economy is on the mend as after spending 3 quarters of the year in the doldrums Q4 results are painting a far healthy picture for the economy.

The news also overshadowed disappointing housing data – home prices in major US metropolitan areas fell more than expected, this was detailed in a report by Standard & Poor on Tuesday.

With regards to today, is expected to be another slow market session. With the ongoing festive holiday, the lack of economic news/data will no doubt lead to low liquidity in the market place.

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Written by Tom Tong

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