Currency movements have been volatile over the past 5 days, after a strong start to the week for Sterling it took a down turn on the back of soaring unemployment figures. As the week ends, Sterling has dropped down from its high of 1.60 to 1.58 against the US Dollar. The Dollar however, which has been boosted by very strong housing figures, at the same time as gaining on the Pound, has fallen to a two month low against the Euro. The end of the week has seen sentiment in the Euro-zone become more calm as further successful bond auctions have eased the threat of instant bail outs.
Pound Sterling – UK Markets
Sterling weakened yesterday as the disappointing unemployment figures from earlier this week continue to weigh down the currency. This morning’s retail and mortgage figures have also come in at the disappointing end. Markets were already dubious about predictions for December’s retail figures due to the effects of severe weather on Christmas spending. They were expected to show a month on month rise of 0.1 percent but in fact came in month on month at a rate of – 0.8 percent, confirming speculation that the retail sector took a hit at the end of 2010.
This may well become more of a concerning factor for UK growth with the VAT rise likely to show some impact on the next set of figures for January. House holds may face some tough decisions as interest rates rise in the future.
US Dollar – US Markets
With recent positive employment and housing data from the US, as well as inflationary pressures, the Dollar has had a strong twenty four against most currencies other than the Euro.
Sales of existing homes rose by 12 percent in December taking the annual sales to the highest level since May last year. This, alongside last week’s dropping unemployment claims, helped to shift sentiment in the Dollar’s favor on Thursday against currencies such as Sterling. The Euro however has still strengthened against the Dollar as worries have eased about any instant bail-outs.
Euro – European Markets
The Euro has performed well over the past twenty four hours as the threat of any immediate bailouts of Eurozone nation is diminishing, particularly after another successful series of bond auctions this week.
The Euro has reached a two month high against the Dollar as reports have emerged about partial debt write-offs – for example rumors have been circulating about Greek debt re-structuring and Spanish cash injections to banks. Strong data from Germany earlier in the week has also helped with the Euro momentum.
Other Currencies – Highlights
The New Zealand Dollar has slumped following a report on retail sales. Sales (excluding automobiles and fuel) fell by 0.2 percent in November – a level far below the expected rise of 0.5 percent. Inflation also accelerated at a lower rate than expected in the fourth quarter. This has contributed to the sentiment that there is reduced pressure for an interest rate rise in New Zealand, dampening the currency.
China has increased interest rates twice in the past four months in a bid to control food and housing costs. Official statistics show that China's gross domestic product (GDP) grew at 10.3% in 2010 which was much faster than expected. Inflation for 2010 as a whole was 3.3% and interest rates have been increased in a bid to control food and housing costs.
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