Quiet day for the three major world currencies.

Tom Tong17/Jan/2014Currency Updates

It was a relatively quiet day by recent standards for the three major world currencies. There was more action from the rest of the world as Brazilian Real, Philippine Peso and Turkish Lira all saw dramatic slides during the day.

GBP

The pound suffered another poor day yesterday, falling against most of its peers during the day as the markets reacted to a leading house price index, which had been released overnight, showing a fall of 2 points from November to 56 in December. The negative trend started in the early hours and continued throughout the session, eventually settling at 0.2% down on the euro. Despite a brief rally against the dollar at lunch time sterling also finished 0.2% lower against its American partner, having touched three week lows in late afternoon. The pound also fell against the Canadian dollar and the yen.

Sterling’s recent bullish run may have been somewhat over played, according to Citigroup’s ‘Surprise Index’. The index, which measures the difference between actual data and economists’ forecasts, dropped to minus 9.3, indicating that recent data releases have been below expectations.

Recent sub-par data and the poor performance of the currency, down 0.9% for the week – the worst performance by any of the G10 bar the AUD, may indicate a recovery losing momentum. Economists however still expect unemployment to hit the crucial 7% mark in the first half of the year.

George Osborne again made news as he announced that he wanted an above-inflation rise of the national minimum wage, which would have to increase by over 10% to £7 to be on par, in real terms, with its pre-2008 level.

December retail sales announced today are expected to jump from November’s figure, although they are artificially inflated by Christmas shopping demand.

EUR

An unremarkable day for the single currency saw it bounce idly around dollar resistance levels, dropping off slightly towards the end of the day. The euro did however take advantage of a weak pound to record it’s best level this month.

European inflation rates were worryingly low but came in only just under consensus, creating little fluctuation in the market, and the ECB’s monthly report again didn’t include much interest. An inflation rate of 0.8% YoY for December, 0.2% down on November and a long way under the targeted 2%, is bad news for EU growth prospects and keeps alive the possibility of Mario Draghi implementing the negative interest rates he threatened last month.

Meanwhile in Spain, Catalonia, the autonomous region home to Barcelona, caused a stir yesterday by voting to seek permission from Madrid to hold an independence referendum. The euro fell slightly as a result.

EU construction data will be released this morning.

USD

US may have inflation stuck at 1.5% YoY in December but it remains far under target, a sign of continually low levels of spending in the economy. However, with initial jobless claims falling by 2000 for the week the dollar enjoyed a strong afternoon, taking gains from most of its peers and ending the session up on the pound and euro, although slightly down against the yen. Overnight trading saw the greenback jump 0.7% against the NZD and hit 3 year highs against the Australian currency, capping a 2% rise for the week.

Expectation across markets is for upcoming dollar strength, with encouraging data from the US this week seen as a warm up for an acceleration in the American economy. In his tea-time Q&A Ben Bernanke, the outgoing chairman of the Fed, defended his flagship quantitative easing policy by taking a swipe at critics who had previously said that it wouldn’t work. The policy has been largely regarded as a success, and with the US economy on the mend and tapering begun, Bernanke was pleased enough with his spell as chairman to even throw in a couple of jokes.

Data out of the US includes building permits and housing starts mom for December, as well as industrial production numbers and a consumer sentiment index.

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Written by Tom Tong

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