- Sterling boosted by strong UK data
- US Dollar supported but awaits afternoon data
So nonentity big brother starts again and we are all supposed to be
enthralled by the inanity of it all. I am proud to say I have never
seen more than 20 minutes of this drivel and have managed to survive
relatively intact. But if that isn’t enough to drive you insane, we
still have D-list celebs dancing, singing cooking and there is always
Ashes cricket if you are really desperate. The markets were getting
back into trading mode yesterday with relatively good US data managing
to boost the US Dollar which strengthened across the board. Today
brings more US data this afternoon but it started with a rash of UK
numbers to get us all going. UK mortgage approvals rose to a three year
high last month and the Services Sector Purchasing Managers Index was
the strongest in over nine years. The Pound, unsurprisingly rose
against everything but gains against the USD were muted ahead of this
afternoons flurry of US data releases. In fact recent UK data has been
so bullish that many institutions are raising their expectations for UK
interest rates and many are pricing in another hike in the first
Quarter of 2007. Sterling should then remain well supported but I
wouldn’t put too much on it because there tends to be a sharp negative
reaction whenever this perception is tested by poor data. And finally,
at a time when UK employers are increasingly worried about the levels
of literacy and numeracy in their young recruits, Gordon Brown wants to
prioritise African Education, Lord help ‘em.
The Pound fell sharply against the Kiwi Dollar yesterday as most
currencies were battered by the US Dollar and as traders started to
factor in higher interest rates in New Zealand. It looks very likely
that the Reserve Bank of New Zealand will be forced to hike their base
rate when they meet on 25th January in order to dampen consumer
enthusiasm and that will inevitably create yet more demand for the Kiwi
Dollar as international investors grab the very high returns that the
Kiwi Dollar offers. In fact part of the Kiwi’s gain yesterday was
driven by the launch of NZ$200 million in bonds which were snapped up
by overseas investors. The GBPNZD exchange rate has bounced a little
this morning though after the buoyant UK data mentioned in the main
section above. However, I am still targeting NZ$2.72 in the short term
and I would view this bounce as a Kiwi Dollar buying opportunity rather
than the start of another move higher.
Sterling looks like it is tied to the Euro by a piece of elastic
because the Pound seems to be unable to break away significantly from
the Euro despite solid variance in the data from the UK and Eurozone.
There wasn’t any EU data yesterday but this morning brought news that
inflation within the Eurozone remained at 1.9 percent in December as
measured on the ECB’s favoured HCIP calculation. This ought to remove
any chance of another interest rate hike from the European Central Bank
but traders are still relatively convinced that we will see higher EU
interest rates before the year is over (I know it has only juts begun).
As for the UK, higher interest rates become far more likely when the
levels of personal debt reach unacceptable peaks and that is exactly
what we are experiencing at the moment. Despite the clothing retailer
Next complaining about Christmas spending levels, every other retailer
appears to have been able to persuade shoppers to melt that plastic in
the pursuit of this year’s must have Chrissie pressie. Personal debt
levels are alarmingly high but so are the bankruptcies and insolvencies
and yet every ad on the TV is for another debt company who doesn’t
appear to care whether you can repay them or not. That “one affordable
monthly payment” offer is the prelude to higher UK interest rates and
that is currently supporting the strength in the Pound. It will be a
volatile time in the GBPEUR rate and a general downward trend is in
place; Euro buyers may miss out unless they act soon.
The
Supreme Court has ruled that they cannot have a nativity scene in
Washington, D.C. This wasn't for any religious reasons. They couldn't
find three wise men and a virgin.
Jay Leno
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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