Christmas week is opening with the Euro having weakened since Friday and the US Dollar and other safer currencies gaining strength. Just when fears had been somewhat appeased in Europe by the agreement of a permanent recue mechanism for Euro nations, the excessive amount of ratings issues that were realised over the last week, have shown their affect in the market.
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Pound Sterling – UK Markets
The Pound slumped to a one month low against the Euro on Friday but has been recovering so far today. It also suffered more losses against the US Dollar on Friday as UK exposure to problems in Ireland has been under scrutiny.
Poor consumer confidence figures as well as concern over the exposure of UK banks to European debt pulled down Sterling at the end of last week.
This morning’s mortgage approval figure for October has come in slightly lower than hoped for at 45,000 rather than 47,000. Also in the headlines is the CBI’s downgrading of its forecasts for UK economic growth in the first quarter of 2011. The CBI stressed that a fall back in to recession was not a possibility but that it now expects growth to be 0.2 rather than 0.3 percent due to job cuts and high inflation. Although this sentiment is unlikely to help Sterling, the fact that it also suggested that the Bank of England will start raising interest rates within six months to help bring down inflation will be more positive.
Final revisions to third quarter GDP and the release of the bank of England minutes will be the main UK events this week.
US Dollar – US Markets
The US Dollar has been doing very well as Euro-fears fail to subside and the intensifying tensions in South Korea causes investors to choose non-risky safe currencies. An upwards revision of US GDP figures is also expected this week.
There was also better than expected consumer confidence figures as well as the extension of previous tax cuts last week which were received well by currency markets.
The outlook is fairly strong for the Dollar this week should struggles in Korea continue as well as the prediction of an upwards revision of the GDP figure on Wednesday materialise.
Euro – European Markets
The Euro toppled down against the Pound and the US Dollar on Friday and is starting the week lower as markets digest the series of rating downgrades that agencies have been imposing on various Euro nations over the past week.
As rating companies continue to downgrade the credit ratings of nations such as Ireland and put other nations such as France, Portugal and Greece on review, the continuing flow of sovereign debt issues remains very much in focus. The European Central Bank has raised particular concerns that flaws inherent in the Irish bail out legislation will prevent Ireland’s ability to provide collateral future funding.
Although a rescue mechanism beyond 2013 was agreed for European nations last week that initially helped the single currency, there is still some feeling that other contentious issues between nations have not been resolved which is likely to continue to drag down the currency.
Other Currencies – Highlights
The Australian Dollar has experienced some gains as some investors are choosing the commodity based currency over the Dollar.
It is thought that some investors may choose to keep funds in the Australian Dollar over the Christmas period as a safe option as gold – the commodity that the nation exports - is unlikely to lose value in the near term.
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