is4profit Weekly Currency Roundup (21st December 2012)
The Euro started slowly this week, holding steady due to a lack of international news impacting the currency. Against the US Dollar the Euro was close to a seven-month high but made a loss against the Pound.
It then hit a seven-month high against the US Dollar due to speculation that US lawmakers will agree to a budget compromise regarding the ‘fiscal cliff’. The single currency also made gains against its major counterparts after credit rating agency Standard & Poor increased Greece’s credit rating.
In midweek the Euro made gains against most of its major currency rivals due to the release of a better-than-forecasted German Business climate report. Against the US Dollar the single currency was able to hit an eight-month high.
The ‘Greenback’ took big losses at the end of last week following the release of worse-than-expected Core CPI data. The disappointing data led to traders and investors speculating that the Federal Reserve will keep US interest rates at their current levels for the foreseeable future.
By midweek the Dollar had seen limited movement, and was unable to recoup the losses it sustained last week. The ‘Greenback’ then made losses against a number of high-yielding rivals due to an increase in risk taking as investors grew more optimistic over the ongoing ‘fiscal cliff’ negotiations. Against the Japanese Yen the Dollar remained within reach of a 20-month high as speculation mounted that the new Japanese government will soon implement an aggressive policy of monetary easing weighed down on the Yen.
On Friday the Dollar posted a mixed bag of economic data. Although the 3.1 per cent growth recorded in the third quarter was better than expected, gains in the ‘Greenback’ were tempered as fiscal-cliff negotiations failed to progress and the number of US jobless claims rose. Whilst developments in the ongoing budget discussions are likely to cause the most significant movement in the US Dollar over the course of the next few weeks, investors will also be paying attention to US Personal Consumption/Income/Spending figures for November.
The Pound hit a two-and-a-half month high against the Dollar, breaking through the $1.6226 level, due to a report showing that house prices in England and Wales declined in December. Against the Euro the Pound halted its four-day decline. According to the report compiled by Rightmove Plc house prices fell by 3.3%.
The midweek high against the US Dollar was due to thin trading demand from the Middle East and international companies looking to hedge. After stubborn UK inflation added to expectations that the Bank of England will refrain from implementing a new round of monetary easing.
Despite the Office of National Statistics reporting a surprising stagnation in UK retail sales on Thursday the Pound experienced little movement against the majority of its most traded counterparts, including the Euro and US Dollar. Today the British currency can expect to see volatility as a result of a raft of data releases including the GfK Consumer Confidence Survey, UK GDP statistics and Public Finance/Public Sector Net Borrowing figures.
The Japanese Yen began the week weak against all of its major counterparts. Last weekend’s election saw the opposition sweep to power raising expectations that strict monetary policy would be enforced to weaken the currency. By the end of the week the markets concerns had not yet come to pass and the currency recovered some ground.
The ‘Aussie’ rose to its strongest level in 19-months against the Japanese Yen after the Asian nation’s main opposition party reclaimed power in Sunday’s elections. The new government has pledged to introduce tougher fiscal and monetary stimulus measures. The ‘Aussie’ then suffered losses after the nation’s Reserve Bank blamed a softening labour market for its decision to cut interest rates at its December meeting. The RBA said that stabilizing growth in its biggest trade partner, China will be a boon for the Australian economy.
Midweek the ‘Aussie’ declined for a third day against the US Dollar due to concerns that the Oceanic nation’s economy is slowing and could face further interest rate cuts by the Central Bank. The worries come as Reserve Bank of Australia Governor Glenn Stevens said that a seamless handover from mining to other drivers of growth may not be possible.
On Friday, for the first time in over seven days the Australian Dollar closed local trade below 105 US Cents. Industry experts are attributing the ‘Aussie’s decline to better than forecast economic data for Germany, the largest economy in the Eurozone.
On Monday the ‘Kiwi’ reached a four-year high against the Japanese Yen due to speculation that the Bank of Japan will begin a new round of monetary easing as early as this month. The ‘Kiwi’ stayed up thanks to increasing optimism that negotiators in the U.S. will find a way to prevent a series of automatic tax increases and spending cuts known as the "fiscal cliff." Demand for riskier assets increased as a result benefiting the perceived riskier commodity currencies.
On Friday the New Zealand Dollar dipped lower following disappointing GDP figures for the South Pacific nation.
The ‘Loonie’ strengthened against its US relation on Monday due to optimism over the ongoing ‘fiscal cliff’ negotiations. The currency is beginning to benefit from the IMF’s recent decision to make the Canadian Dollar a safe-haven currency after C$13.3 billion was bought by investors in October.
Midweek the currency declined against its US counterpart for a second day as US negotiations over the ‘fiscal cliff’ remain unresolved. The Canadian currency was trading close to its lowest level since July. Against the Euro it declined as German business confidence increased for a second month in December, a possible sign that Europe’s largest economy could support a Eurozone recovery next year.
As the week drew to a close, investors will be watching Friday’s Bank of Canada Consumer Price Index and Gross Domestic Product figures.
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