The end of year brings little to cheer!

As markets gear up for the New Year holiday there seems to be no respite for the Euro after yesterday’s Italian bond auction failed to meet its target. At home, data released this morning has highlighted the fragility of the UK housing sector, with the Nationwide house price index declining unexpectedly for December. With European and US economic calendars offering very little today we expect trading to remain lackluster.

Pound Sterling – UK Markets

The Pound has strengthened against its major counterparts this morning. Markets have shrugged off dismal data released this morning by the Nationwide Building Society, which showed that British house prices posted a first decline in four months for December. The agency further cautioned that the UK housing market will likely weaken in 2012. Yesterday, Sterling fell against the US Dollar in the face of persistent worries over the impact of the European debt crisis on the British economy. A disappointing Italian bond sale further crimped demand for high yield currencies. We expect the Pound to trade mostly range bound in the absence of any immediate triggers.

US Dollar – US Markets

The US Dollar is trading lower against most majors other than the Euro. Economic releases in the US yesterday indicated that the US economy is winding up the year on a stronger footing. Pending home sales for November unexpectedly spiraled to a 19 month high and coupled with an expansion in the Chicago area manufacturing activity, propped up investor sentiment. Investors now await the release of ISM’s December factory index data, scheduled for release next week, which is likely to indicate further expansion. Lack of major news flow and data releases is likely to lead the US Dollar to trade in a narrow range against the majors today.

Euro – European Markets

Yesterday’s lackluster Italian long-dated bond auction added to market worries over the European debt crisis and has led the Euro lower against the majors this morning. The bond auction came in short of the expected €8.5 billion, even as yields dropped. Adding to the woes, the Bank of Spain, in its monthly economic bulletin, highlighted a likely contraction in the nation’s economy for the fourth quarter. On the economic front, easing German consumer price inflation for December has fuelled speculation of further easing measures by the ECB. Traders are now keenly eyeing the Eurozone’s manufacturing PMI slated for release next week, which is expected to indicate a slowdown. The Euro is likely to remain under pressure against the majors amid subdued trading in today’s session.

Other Currencies – Highlights

The Kiwi Dollar is trading higher against the US Dollar, as risk appetite among traders improved on the back of better-than-expected Chicago manufacturing activity and upbeat US pending home sales, released yesterday. A contraction in Chinese manufacturing activity, released this morning, was taken in stride by investors. While we expect trading to remain lackluster and range bound we anticipate the Kiwi Dollar to continue to cement its modest gains in today’s session.