Market’s buoyed by festive cheer

There is a “risk-on” sentiment in the markets today as traders are becoming increasingly confident over the improving situation in the US. Following yesterday’s upbeat US economic reports, today is likely to see further evidence from the latest US consumer spending and home sales figures, to reinforce this dynamic. The upward revision of UK GDP numbers yesterday, coupled with the backing of Italian Senators to the nation’s austerity package, augurs well for improved sentiment in high yield currencies.

Pound Sterling – UK Markets

Sterling has gained against the US Dollar after basking in yesterday’s upwardly revised GDP figures for the third quarter. This unexpected bounce highlighted a boost in manufacturing and construction sector activities and an easing squeeze on households, as key components for growth. Additionally, market expectation that today’s US consumer spending and new home sales figures are likely to be upbeat, has resulted in improved risk appetite. However, BBA mortgage approval figures and the UK services output for October, both released today, have been below market expectations. With a quiet day ahead of the holiday season we expect the Pound to trade in a narrow zone against the majors.

US Dollar – US Markets

Improving risk appetite among investors coupled with gains in Asian equity markets today, have dragged the US Dollar lower against the high yield currencies. A slew of significant economic releases yesterday, consisting of an upbeat Reuters/Michigan consumer confidence index and a decline in initial jobless claims, painted an encouraging picture for the US economy. However, the final GDP figures showed a slow pace of growth in the third quarter. On the monetary policy front, Philadelphia Federal Reserve Bank President, Charles Plosser, has stated that the central bank’s upcoming meeting in late January will provide a good opportunity for the Fed to begin offering interest rate forecasts. Market participants anticipate that today’s US consumer spending and new home sales figures will show an improvement.

Euro – European Markets

Final approval of the Italian austerity package by the nation’s Senate has helped the Euro to consolidate gains against the majors today. The Euro was unperturbed following Moody’s downgrade of Slovenia’s credit rating by one notch. However, data released earlier in the day indicated that the French GDP for the third quarter was revised downwards, heightening concerns over the looming threat to the nation’s credit rating. Meanwhile, the ECB executive board member, Lorenzo Bini Smaghi, has stated that central banks should not hesitate to use quantitative easing if the economic outlook deteriorated and there was a risk of deflation. With the economic data docket turning increasingly sparse and a festive mood prevailing, the Euro is likely to trade range bound against its major counterparts.

Other Currencies – Highlights

The Swiss Franc is trading flat against the high yield currencies ahead of the Swiss National Bank’s Quarterly Bulletin, the only significant release on tap today. Traders have their eyes on the central bank’s approach to curb the appreciation in the Swiss Franc. Earlier in the week the Swiss Finance Minister, Eveline Widmer-Schlumpf, revealed that a panel from the Swiss government and the central bank are collectively evaluating options, such as capital controls and negative interest rates, to curb the currency’s strength.