An unexpected rise in UK consumer confidence has helped to revive hopes of an improvement in the domestic economy and led the Pound higher against the majors. Meanwhile, German business confidence unexpectedly rose for the second month in December and provided a boost to the Euro against the US Dollar. Earlier, Europe’s contribution of €150 billion in bilateral loans to the IMF fell short of market expectations.
Traders are eyeing the Spanish bond auctions and the ECB’s longer-term refinancing operations, both scheduled for later today.
Pound Sterling – UK Markets
Sterling has received a boost against the majors this morning after the Nationwide Building Society reported that British consumer confidence rebounded unexpectedly for November. This positive consumer confidence, coupled with easing consumer price inflation, has strengthened prospects for British retailers ahead of the crucial Christmas period.
However, BoE policy maker Paul Fisher’s comments that the Eurozone crisis could push the British economy into recession, has limited the gains in Sterling. In a significant development yesterday the UK backed off from committing aid to the IMF for the European crisis.
With CBI reported sales being the only significant economic release today, amid broadly positive sentiment we expect Sterling to move higher against the majors.
US Dollar – US Markets
The US Dollar is trading lower against the majors owing to a marginal improvement in risk appetite ahead of the Spanish bond auction and the commencement of the ECB’s longer-term refinancing operation today.
Upbeat US home builder sentiment coupled with persistent worries over the Eurozone, led the US Dollar to finish trading higher against the majors yesterday.
Meanwhile, Federal Reserve Bank of Richmond President, Jeffrey Lacker’s forecast of moderate growth and his downbeat view on additional stimulus, has dampened market speculation of further quantitative easing.
Economic releases scheduled for today include building permits and housing starts, which are not likely to have a meaningful impact on the currency. We anticipate the US Dollar to trade lower against the majors and find further direction from the events unfolding in the Eurozone.
Euro – European Markets
Trading sentiment towards the Euro has been aided by an unexpected rise in German business confidence for the second successive month in December. Earlier an unchanged reading for German Gfk confidence index for December had not impacted markets substantially.
Yesterday, EU finance Ministers once again failed to offer aggressive support for the region’s ailing finances. Europe offered €150 billion to the IMF, falling short of the expected €200 billion. Outside the Eurozone, the Czech Republic, Denmark, Poland and Sweden have pledged to contribute to the IMF fund, while Britain has postponed its commitment till early 2012. Moreover, the ECB President, Mario Draghi, spooked markets by highlighting significant funding constraints and substantial downside risks to the region’s economy.
The focus for traders today is the ECB’s long-term refinancing operations. We expect the Euro to trade higher against the majors and take further cues from the outcome of the Spanish bond auctions slated for later today.
Other Currencies – Highlights
Market expectations that a report, scheduled for tomorrow, would show that New Zealand’s economic growth accelerated in the third quarter, have led the Kiwi Dollar higher against the US Dollar this morning. Additionally, receding concerns over instability in the Korean Peninsula have led to an improvement in risk appetite.
A survey by ANZ National Bank, indicating a decline in the nation’s overall business confidence, had weighed on the Kiwi Dollar yesterday.
We believe that expectations of an upbeat GDP reading, coupled with an improvement in risk appetite, will help the Kiwi Dollar to consolidate gains against the US Dollar, despite downbeat expectations for current account data slated for release later today.
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