Sterling has appreciated against the Euro following the release of negative economic data from the Eurozone this morning. The US, Australian and Kiwi Dollars are trading near recent highs as interest rate cuts are predicted from the Bank of England and ECB this month.
Pound Sterling – UK Markets
Sterling has started the New Year with a bullish run on both the Euro and Japanese Yen. On New Years day the Pound traded at a record low of 1.02 against the Euro but has since bounced back to the 1.09 region as data suggests economic downturn is starting to gain momentum in the Eurozone.
In an interview with the Financial Times this morning, Chancellor Darling has described the UK financial situation as ‘difficult’ and conceded he may have to revise previous economic forecasts. Yesterday Debenhams, Next and Marks & Spencer released negative sales figures with M&S to cut over 1000 jobs as the tough retail climate impacts on retailers. UK car sales also fell 11.3% in 2008. The January interest rate decision from the Bank of England is due tomorrow and markets are pricing in expectations of a 0.5% to 1% reduction in the base rate. Producer price index and industrial production figures are due on Friday.
US Dollar – US Markets
The Dollar is currently benefiting against the Pound and Euro, trading at 0.67 and 0.73 respectively as further negative economic data is eroding support for the currencies.
Data has been light in the US over the New Year period and the Dollar has climbed to mid-December ranges against the Pound and Euro. Oil has risen to $50 a barrel amid supply disruptions in Russia and the Ukraine. New mortgage applications and employment figures are released in the US today and are likely to induce further Dollar volatility.
Euro – European Markets
The Euro has slid back from recent record highs to trade at 0.91 this morning against the Pound and 1.35 against the US Dollar.
The Eurozone producer price index released this morning has declined 1.9% for November, the largest drop since records began in 1990. Inflation has also fallen to a 6 year low of 1.6% ensuring deflation is now a central concern of the ECB. Pre-emptive interest rate cuts have been mooted my members of the governing council, contributing to some Euro weakness. German unemployment has also risen for the first time in 3 years and the export driven German economy has now entered recession. Consumer confidence and GDP figures are due for the Eurozone tomorrow.
Other Currencies – Highlights
Australasian currencies have benefited overnight as markets are pricing in expectations of further interest rate cuts in the UK and Eurozone. The Australian Dollar remained in high trading ranges against Sterling and the Kiwi Dollar was also strong. The Bank of Taiwan has cut interest rates this morning by 0.5 to 1.5% and Australian trade balance figures are due tomorrow.
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