USD rises across the board, Eurozone loses S&P AAA rating

Tom Tong20/Dec/2013Currency Updates

GBP

London closed with the pound edging up against the Euro but dipping against the greenback. Accordingly the market is still taking in the effect of the announced start of initial tapering by the FED in JAN 2014. Right now it seems the market is taking it in its stride and the clincher will come in January when the taper is actually initiated.

U.K Retail sales made little noise yesterday nudging up a minor 0.3%, however this fails to retrace the previous months fall. Economists are making noises that despite the overall recovery average wages are still relatively stagnant with average wage rises sat at a poor 0.9%, therefore making it tricky for consumers to splash the cash as the cost of living continues to rocket. Retailers will look to today to get tills ringing, a blizzard of festive shoppers are anticipated to hit the shops hard today, more than £1B will be withdrawn from cash points with cash withdrawals hitting 27k a second by midday, its widely expected to be the busiest day of the year for cashpoints and shops. All of this is massively important for the wider economy. Retail consists of 5.4% of the overall economy and growth in this sector is vital to fuelling a consistent recovery.

Heavy data out of the U.K today includes- quarterly GDP public sector borrowing and total business investment also BOE quarterly bulletin and a consumer confidence survey.

EUR

Breaking news this morning- EU loses AAA credit rating as S&P cuts to AA+ EUR slipped a little since market opened but remains well supported.

London closed with the Euro down against the pound but minor gains against the Dollar. The main focus was away from the FX market as wider financial markets mediated over what the revolutionary EU banking legislation will mean. EU leaders yesterday reached an agreement of the general principles of the new banking legislation, ultimately they will give regulators fresh powers to close failing banks and ensure we do not see a repeat of the recession where various Eurozone nations almost went bankrupt. The banking union deal was announced in the morning although without an insight into the published legal texts we are unable to quantify what it will mean in practice.

Negotiations had revolved around the creation of a eurozone body with the powers to shut down failing banks, combined with a financial supervisor of the Eurozone as a substrate to the activities of the ECB. However the texts leaves flexibility for governments to block moves by the regulators, decisions would be made within 24 hours unless objections were raised.

The sticking points remains who will have the final say on whether to close the bank and whose pockets will be turned to pay for such a measure.

Data of note out of the Eurozone today includes- EU consumer confidence, German CPI and PPI also Italian retail sales and Greek current account.

USD

Good day for the greenback yesterday with the dollar scalping gains against both the Euro and Sterling.

Bundles of data out of the U.S paint a varied picture. Initial jobless claims rose 10k to 379,000, home sales dipped 4.3% and the Philly Fed manufacturing survey saw a slight uptick. Many are stressing that the data is seasonally adjusted therefore the minor slips are nothing to worry about- this has been the second week of elevated jobless claims and the market or dollar has not moved. However the majority have been wrong before and the data is pretty confusing. Inevitably home sales will continue to dip as mortgages have become more pricey. The initial jobless claims may ruffle a few brows although most still expect the U.S to continue to beat unemployment with more getting into work, hence the planned FED taper as they feel the economy is back on track.

Data of note out of the US today includes- annualised GDP, Kansas Fed survey and the vote for FED chairman.

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Written by Tom Tong

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