Caxton FX Currency Blog

Richard Driver, Analyst With many traders off on their Christmas holidays already, markets are very thin indeed now. US GDP was surprisingly revised downwards for Q3 of this year, revealing growth at an annualised rate of 1.8%. Still the market was not too bothered, comforted by the pick-up in US growth we have seen in the final quarter of the year and the improved outlook for 2012. Today’s session brings plenty of US data but if yesterday’s GDP figure failed to leave an impact, today’s releases will also go unnoticed. From all the team at Caxton FX, have a great Christmas.
STERLING/EURO: Sterling’s safe haven bid continues to provide support against the single currency, helped by improved UK GDP figure. UK GDP hit 0.6% in the third quarter of 2011, which was slightly better than expected. The market will be all too aware that the outlook for the UK economy leaves little to get excited about, but the GDP figure was still a nice surprise. Less positive was news that the UK’s current account deficit widened to its worst level in almost a year and a half. The safe-haven attraction of UK gilts, and sterling by association, has taken sterling up above €1.20, its highest point since early January 2011. Further gains are likely to come, but perhaps not today.	FORECAST
STERLING/US DOLLAR: This pair remains range bound as data fails to leave its mark and as the flow of headlines dries up. US GDP was revised downwards to 1.8% (annualised) for Q3 2011. This 0.2% downward revision is actually pretty disappointing but the markets didn’t respond. The Wall Street Journal has reported that the US Federal Reserve could leave interest rates at their current record lows of 0.25% until 2014 and beyond. This is dollar-negative in the long-term but will not worry the markets in the short and medium term. Sterling is trading at $1.57, which represents a stronger finish to the year than we expected. Despite a warning from Moody’s about the UK’s treasured triple-A rating, sterling has done traded very well in the past fortnight or so.	FORECAST
EURO/US DOLLAR: The euro continues to hover above the psychological $1.30 mark but we are still anticipating another push lower. ECB policymaker Smaghi has called for quantitative easing to boost the eurozone economy if deflation risks emerge moving forward. With QE consistently ruled out by the ECB, this is an interesting development and will certainly have caught the market’s eye. Unfortunately for the market, which would welcome eurozone QE strongly, Smaghi’s tenure at the ECB ends very soon so hopefully he will persuade some of his colleagues before doing so. The euro is trading at $1.3075 this morning, European stocks have opened strongly, so a push below $1.30 may have to wait until after Christmas and perhaps the New Year.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Aussie trading positively, helped by demand for Australian government bonds. Australia has also managed to maintain its AAA credit rating, and demand for its government bonds is giving the aussie dollar some decent support. This club of top-rated government debt will continue to shrink and for those nations that hang on to it, the associated currencies will reap the rewards. Sterling is trading at 1.5450 this morning, and no major movements seem likely.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling edged lower against the kiwi dollar despite the worrying news of another earthquake in Christchurch. Christchurch is still bouncing back from the destructive earthquake we saw in the city earlier on in the year. Another quake will strengthen the case for another interest rate cut from the Reserve Bank of New Zealand. The kiwi dollar still managed to strengthen against sterling however, helped by some positive weekly jobs data. Despite losses in Asian stocks last night, this pair is trading down at 2.0250, and we may see a session of range-bound trading.	FORECAST
STERLING/CANADIAN DOLLAR: The loonie continued to make gains over sterling yesterday, helped by a decent bounce in the US stock market. Positive US risk sentiment drove the Canadian dollar forward yesterday, traders turned a blind eye to the downward revision of the US GDP figure and focused on some improvements in the US labour market. US unemployment continues to be the number one concern in the US economy. This pair is trading at 1.60 this morning. We have a monthly Canadian GDP figure later today, which expected to show growth of just 0.1%, but as ever US GDP will probably overshadow.	FORECAST