EUR strengthening against basket of major currencies with GBP retracing from Tuesday's 2-year high

Tom Tong12/Dec/2013Currency Updates

GBP

Poor day for sterling yesterday. The pound retreated from Tuesday’s 2-year high against the dollar and dipped pretty much all day. Notable slips also experienced against the euro as it continues to enjoy widespread support from both a currency and stocks perspective with the majority in the short term appearing bullish towards the euro zone.

Good vibes from the past weeks positive housing data, growth forecasts and Carney’s speech in New York have now been eroded. Chatter yesterday that the sterling dip was exacerbated by investors looking to scalp strong profits from the pounds recent ascent. Presently, the market appears to be having a brief pause whilst we await further data out of the UK, which will surely lead to pivots.

The ECB dodging away from further easing is lending the euro increased support with gains against a basket of major currencies. The greenback is hustling support from the Congress agreement that looks to dispel the threat of another partial shutdown.

Fundamentally sterling is fairly resilient and it’s possible for the gains to be retraced. Indeed London opened this morning with sterling flipping some of yesterdays losses and scuttling up against the greenback.

No data of note out of the UK today.

EUR

The euro’s performance yesterday was almost as confusing as the eurozone itself. Various data dropped in the morning and early afternoon that typically would bite any chances of daily gains for the currency. However right now the market seems to view this as a sideshow as the spotlight remains on the main stage of central bank policy. The ECB intentions to pretty much leave things as they are is buoying the currency as many initially felt that proceeding from the bold interest rate cut more intervention was surely around the corner. For the short term at least this does not appear to be the case and the euro enjoys widespread support across the board, despite both micro and macro data painting a fairly poor picture for the eurozone’s long term growth prospects.

Other than euro gains the only good news out the eurozone was a mild uptick in German consumer price growth. It moved in the right direction ticking back upwards thus quelling fears of possible deflation. Growth came in at 1.6% up from last months 1.2% The ECB anticipates inflation in the Eurozone to remain fairly muted in the near future rising to only 1.3% in 2015.

Away from Germany the darling of Europe the situation is not looking too clever. The eurozones second biggest economy, France is still flagging. Many had been hoping that French employment levels would counter the recent run of poor data. This was not the case with French drops again dipping and the nation struggles for economic growth. Private payrolls nudged downwards 0.1% and are down 0.6% for the year.

The Greek jobless rate was more cause for concern as it posted its highest ever jobless rate. Greek unemployment crashed through the floor and doubtless there will be some tongues hitting the floor upon reviewing the Greek situation. Unemployment is 27.4% which is 3.2 million people, despite the efforts of the ECB to inject growth into Greece the unemployment rate is 5.9% higher than this time last year. This follows from earlier in the week when Greece recorded record deflation. The government still maintains the economy will see 0.6% growth next year. Perhaps the reality will be a little different.

Data of note out of the eurozone today includes- ECB monthy report and Industrial production, we also have Draghi talking.

USD

Dollar up and down with a fair amount of volatility with resistance levels gained and lost, however London closed with the greenback down against both the euro and sterling.

Events of massive importance away from currency markets, namely the budget deal.The budget deal appears to impose a further net tightening in 2014, but the devil is in the details. Essentially the deal averts one fiscal flashpoint, but the bigger beast is still on the prowl with the debt ceiling looming for Q1 next year. The market feels the development is unlikely to affect tapering but the FED can be unpredictable and weirder things have happened.

Jobless claims today with the festive period historically seeing a rise in claims, mostly due to a tight seasonal adjustment. This week, the jobless claims are widely called to rise by 6K; that would leave the headline adjusted number unchanged at 298K.

Today’s November retail sales report will give us the first official verdict on spending over the Thanksgiving weekend, though at the headline level we expect the numbers to be dominated by the strength of autosales. If the dollar value of sales rises in line with expectations this should boost total retail sales by about 0.6%

Other data out of the US includes- export price index and business inventories.

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Written by Tom Tong

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