Strong US retail sales and budget deal boost USD

Tom Tong13/Dec/2013Currency Updates

GBP

In a day of light volumes yet some volatility Sterling saw some movement against both the Euro and Dollar. London opened with Sterling well supported against the greenback however it was soon back pedalling and London closed with slips against the Dollar. On the flip side, slight gains against the Euro.

General chatter alludes to investors poised for critical data out of the U.K next week, many are also getting jumpy about the rumours of a possible taper this December, more so in equities with both the FTSE and DOW in a fairly miserable state, the stock market is falling victim to a pincer from talk of the taper and further hints of a U.S budget deal. A wind down of FED support of the economy is inevitably going to initially hurt stocks however once the situation levels most expect the losses to retrace.

Elsewhere more good news out of the U.K for the housing market and average wages, right now there is little sign of a surprise grinch spoiling what has been a truly spectacular ascent of the U.K economy with the economic situation now almost unrecognisable from this time last year. Data yesterday showed that U.K wages grew this year at their fastest pace since before the financial crisis. Equally importantly inflation nosedived to its lowest level since 2009. More pounds in the pocket is a pleaser for everyone and these gains speak for themselves and paint a good picture for long term growth prospects.

Data released showed the housing market is still flinging forward with an almost juggernaut force. Mortgage lending has now hit pre crisis levels with 27,000 loans to first time buyers in October. People are buying into a massive bull market hence the inevitable discussion over a possible property bubble, however its worth noting overall prices are still 7% from pre recession highs and we still have a huge housing shortfall. Hence the peak in prices- U.K prices are up an annual average of 4.9% London prices a staggering 9.2% Naturally the market is buoyed by the help to buy programme and the now discontinued funding for lending, either way it is good for the wider economy.

No data out of the U.K today.

EUR

Presently the Euro is performing incredibly well and displaying it’s astonishing resistance to market forces that typically would dip any other currency. Despite closing down against both Sterling and the Dollar yesterday, as we approach the middle of the month its worth taking a slight longer perspective. Right now the Euro is riding a 5 year high against the Yen and over the past month has scalped a 4% rise against the greenback. Furthermore it has punched backed against Sterling. Admittedly it was scuttling from a very low level after the ECB rate cut hit it badly.

The Euro strength is less connected to investor mentality on longer term prospects for the Euro, although attitudes have now shifted with increased Euro bullish. More so it is slanted towards the ECB reluctance to further alter monetary easing, and the looming ECB asset quality review of bank loan books has led most banks to hoard Euros thus pushing prices up. Accordingly it has also nudged up Euribor. Arguably it is this potent mixture of ingredients that is giving the Euro such strength.

Data of note out today includes- Eurozone employment change, Spanish and German wholesale inventories alongside German CPI.

USD

A good day for the greenback yesterday with gains across the board and gains against both the pound and Euro. Many have been puzzled by the recent Dollar weakness with the recent strong NFP, wider macro data looking increasingly rosy and talk of a FED taper sooner than expected the market would expect a greenback rally, however this has not been forthcoming. Perhaps yesterdays nudge upwards is the beginning of further strength.

Eyes and ears on the White House early morning yesterday with positive news that the U.S negotiators have agreed on the budget deal, it still needs to clear through the Senate however with bipartisan support the passing of the bill will surely be a certainty. U.S retail sales also saw uplift which is good news as it displays enhanced consumer confidence in what many expect will be a record Christmas of spending with people far more willing to spend.

Data of note out of the U.S today includes PPI also happy birthday to Ben Bernanke who will surely be opening his presents with glee as the U.S situation continues to show strong improvement.

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Written by Tom Tong

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