Richard Driver, Analyst The sell-off in the euro and other risky assets took a breather yesterday in light of a healthier Spanish bond auction and some improved growth data from both the eurozone and the US. UK retail sales were poorer than expected, but the high street enjoyed a good couple of months prior and could well bounce back in December. Today’s session is far quieter in terms of scheduled announcements. Sterling has come through this week’s UK data (unemployment and retail sales) unscathed and looks well set to continue its uptrend against the euro. |
STERLING/EURO: The pressure came off the euro a little yesterday as Spain enjoyed a successful bond auction. - UK retail sales came in worse than expected yesterday, contracting by 0.4% compared to October. On the upside, September and October’s figures were revised up and looking at the past three months as a whole, we’ve not seen such strong retail sales since August 2010. The market is convinced the UK is heading into a gloomy 2012, but sterling was largely unaffected.
- Spain managed to attract sufficient suitors at a bond auction yesterday to ease contagion fears somewhat, but this will be temporary. Eurozone growth, whilst remaining in contraction outside of the services sector, came in above expectations yesterday to help the ailing euro. Sterling continues to trade above €1.19.
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STERLING/US DOLLAR: The dollar’s outperformance halted yesterday as news was a little more positive and stocks gained. - US manufacturing data was excellent yesterday and triggered some gains in US stocks, taking funds away from the US dollar. US growth is pretty much the only positive story in the market at present and it was enough to lift the mood yesterday.
- We are still looking for a lower GBP/USD pair, particularly with threat of eurozone debt downgrades continuing to alarm investors. Sterling continues to trade at $1.55 this morning.
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EURO/US DOLLAR: This pair continues to hover above eleven month lows, and a sustained move below $1.30 only looks to be a matter of time. - Some of the Asian sovereign buyers that have propped up the euro all year are now turning into sellers, which is helping to pull the rug out from underneath the single currency. The euro is having its worst week in three months in the wake of last Friday’s disappointing EU Summit.
- This pair is trading at $1.30 this morning, the euro continues to look vulnerable and unable to sustain any real bounce.
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STERLING/AUSTRALIAN DOLLAR: More positive headlines improved risk appetite yesterday, which helped the aussie recoup some ground. - Sterling ceded a cent to the aussie dollar as market confidence enjoyed a moderate bounce yesterday in light of some strong US manufacturing figures and a successful Spanish bond auction. Another sell-off in risk can only be around the corner though, with sentiment so incredibly fragile at present.
- Sterling is trading above 1.55 and its hard to see risk appetite building further today, which should help sterling bounce back.
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STERLING/NEW ZEALAND DOLLAR: Sterling lost two cents against the kiwi dollar thanks to an impressive Asian session. - Asian equities enjoyed a rare session in the green last night, which boosted appetite for the kiwi dollar. The outlook for the kiwi remains pretty grim as far as we are concerned though, based on a fairly pessimistic view of eurozone debt crisis progress.
- Next week brings some important data from New Zealand, the highlight being the quarterly GDP figure on Wednesday night. For now though, this pair trades at 2.0450.
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STERLING/CANADIAN DOLLAR: The loonie benefited from further good news from the US economy, but markets are still too nervy to see the loonie rally. - US economic growth really is picking up as 2011 draws to a close. The pickup was anticipated but it has come later than expected. Canadian domestic data was also strong yesterday, which added to positive sentiment.
- Sterling is trading a little lower at 1.60 this morning and the outlook remains positive for sterling against riskier currencies.
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