Will The Winter Weather Turn The Euro Cold?

The Dollar had a strong day on Friday as US jobs data revealed better unemployment and average earnings figures. Sterling suffered in the shadow of this rise but is still in a relatively good position following last week’s run of strong PMI data and has been on the up against the Euro and the Dollar so far today. German factory orders have come in this morning disappointingly low with the weather of December being attributed for pulling monthly growth down to – 3.4 percent. This suggests that the Euro may very well start the week off on the wrong foot before retail figures, which could show themselves to have been similarly affected by the snow and ice, tomorrow.

Pound Sterling – UK Markets

Sterling lost out to the US Dollar after it rallied on Friday but is gaining back ground so far today. The pound also took a downwards slide against the Euro but this has been volatile as speculation continues over interest rates in both economies, with the Pound on the up turn so far this morning. There is no key UK data today so the Pound is likely to respond to events in other economies with German factory orders and a speech by Trichet being the influential events of the day. The UK interest rate decision on Thursday will be closely watched with all the hype over how long a rise will take to arrive being paramount. Trade balance data on Wednesday will also be important to see whether December’s severe weather has impacted this in line with fourth quarter GDP.

US Dollar – US Markets

The US Dollar saw a strong rise against other major currencies on Friday which it maintained over the weekend. This was due to the latest set of jobs figures – although non-farm payrolls were below forecasts, the unemployment rate unexpectedly fell to 9.4 percent and average earnings rose from 0.1 to 0.4 percent. This employment data fared well for the Dollar which may also increasingly respond to reports and comments about inflationary pressures. Some economists have suggested that the Federal Reserve may need to do more to tackle inflation and in time there may be a similar level of hype around interest rates in the US as the UK and Europe.

Euro – European Markets

The focus in Europe today was whether German factory figures would be as forecast and negatively affected by the weather in December. A monthly drop of – 1.4 percent was expected accounting for the impact of the weather, but the real picture was much worse with the figure falling as low as – 3.4 percent. The year on year figure is still relatively robust seeing growth now at 21.9 percent but the drop at the end of 2010 will be analysed no doubt alongside the retail sales figures from Germany tomorrow. Tomorrow’s figures are expected to show good retail growth but with a high figure expected, markets will be watching to see whether this can be achieved in reality.

Other Currencies – Highlights

The South African Rand has fallen as it has been revealed that the Reserve Bank boosted Dollar purchases in what is being analsyed as an attempt to keep the Rand lower. The currency has suffered its largest monthly slump in two years in January. Gross reserves held by the Reserve Bank rose by 3.7 percent in January and net reserves increased by 2.5 percent. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.