US Dollar and Sterling were yesterday’s front runners as investors came out of positions held over Christmas and on the back of positive figures from both economies in the manufacturing sectors. US factory orders in particular shined through achieving a rise of 0.7 percent far outweighing the expected decline of 0.1 percent. Although not signalling that any stimulus measures will be withdrawn, the US Federal minutes from the last policy meeting were more optimistic about the outlook for the US economy.
Pound Sterling – UK Markets
The Pound made gains throughout yesterday following positive mortgage approval figures and better than expected manufacturing PMI data which saw a sixteen year high. It was hoped that this morning’s PMI construction figure would follow suit with the PMI manufacturing figure but it has contracted for the first time in ten months.
The construction figure has disappointed coming in at 49.1 instead of 51.8 which may in part be due to last month’s weather conditions.
Pressing job-cuts have made other headlines with the GMB Union warning that 200,000 jobs may be cut by councils in England this year and warned that they fear that redundancies will be rushed through before the end of the financial year in March.
US Dollar – US Markets
The US Dollar advanced on Tuesday against most major counterparts following good factory data, although it suffered a sudden drop against Sterling in the first half of the day due to UK house price figures. Rates went from 1.5450 at 7.45am to 1.5630 by 9.45am which is 1.2% in 2 hours.
The Federal minutes for December acknowledged the recent run of better than expected economic data giving a more optimistic outlook on the economy. The overall sentiment from policy makers revealed in the minutes however was still cautious with the committee not indicating that they were ready to rein back the quantitative easing measures which were introduced last November.
Today’s ADP employment report for December is expected to improve on last month’s report to show a gain of 100,000. This could potentially give the Dollar some upwards momentum towards the end of the week and a strong figure could also translate well into Fridays’ key US non-farm roll report.
Euro – European Markets
An early boost for the Euro yesterday following a rise in CPI inflation figures to 2.2 percent in December from 1.9 percent in November was soon dampened as the Dollar speeded ahead and Sterling also gained ground.
Stubborn sovereign debt pressures are refusing to go away, as Portugal holds a bond auction today, which will highlight to markets whether or not risk-appetite has been diminished, especially given Portugal’s recent downgrades by ratings agencies. Sterling currently stands at its strongest rate for 2 weeks against the Euro.
Other Currencies – Highlights
The Polish Zloty has advanced to its strongest levels in two months after Bank Governor Marek Belka was reported as suggesting that policy makers should raise interest rates.
Some are now expected an interest rate rise to come in the first quarter which would in all likelihood help to strengthen the Zloty.
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