Currency Update
14 January 2010
Sterling slides into 2010.
The Pound declined throughout December, trading from a high of 1.66 and finishing the month just above 1.60. Whereas the Pound spent most of the year benefiting from risk appetite in the market, the Dollar ended the year stronger as traders became bullish on the US economy.
Why? With the US out of recession and non farm payroll figures showing a huge decline in the rate of US job losses, it would seem more likely that the Fed would consider an interest rate hike sooner rather than later.
The US economy showed strong manufacturing and retail indices, positive consumer confidence and better than expected existing home sales.
Well that was 2009… 2010 could yet see Dollar weakness again as doubts surfaced in early January with the latest nonfarm payroll figures showing 85,000 job losses in the US, when some analysts had even forecast job creation.
As the Prime Minister came under pressure so did the Pound. Although Gordon Brown fought off a small revolt in his ranks, Sterling bulls will still want to see a decisive victory in the UK’s general election to be held before June this year. Even just the possibility of a hung parliament could send the Pound lower as neither party would have a majority to push through the legislation needed to combat the UK’s ailing recovery.
January 26th will prove crucial to Sterling. Preliminary GDP figures will show if the UK did indeed come out of recession in the fourth quarter of 2009. If so, we could see a Sterling rally; if not, traders are certain to sell the Pound, sending it much lower than current levels.
EUR/USD
Having traded as high as 1.51 at the beginning of December, the Euro declined toward the end of 2009, finding support at 1.42. Credit downgrades for Greece and the budget deficits of Ireland, Spain and Italy caused continued sell offs.
The Euro zone has offered some very unimpressive data compared to the United States. The Euro, however, has returned to trade above 1.44 after the US’s poor non farm payroll figures.
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