The first trading week of 2012 has begun with a largely positive risk appetite among traders. This follows upbeat manufacturing data from Germany, China, Australia and India. At home news has been mixed with the manufacturing PMI rising to a higher-than-expected reading of 49.6 for December, whileconversely the Lloyds business barometer dropped to its lowest level in three years. Across the Atlantic, data scheduled for release later today is expected to provide additional positive impetus to high yield currencies, with US manufacturing for December expected to show the fastest pace of growth in six months.
Pound Sterling – UK Markets
The Pound has strengthened against the US Dollar this morning despite less than encouraging economic data from the UK.
Markets seem to have shrugged off dismal data released this morning by Lloyds Bank Corporate Markets, which showed that UK business confidence declined to its lowest level in three years for December. The survey further revealed that businesses in the UK predict a 75% probability of a recession. The UK manufacturing PMI was upbeat with the index rising to a reading of 49.6 for December, compared to a reading of 47.7 posted in the previous month.
There is little action scheduled on the economic front this week in the UK. We expect the Pound to maintain its gains against the US Dollar and its current levels against the Euro today.
US Dollar – US Markets
The US Dollar is trading lower against the majors this morning on higher risk appetite among investors.
An improvement in manufacturing activity in major global economies has dented demand for the US Dollar. Market expectations of upbeat US manufacturing data, due later today, has further prompted traders to shun safe haven currencies and move towards high yield assets.
Traders are also keeping an eye on the minutes of the last FOMC meeting slated for release later today. The minutes are likely to indicate that policymakers were a little more optimistic about economic prospects in the light of recent strong economic data.
We expect the US Dollar to be under pressure against the majors today.
Euro – European Markets
The Euro has started the year on a strong footing against the US Dollar as risk appetite among traders improved. This followed the release of upbeat manufacturing data in Germany, China, Australia and India. Adding to the positive sentiment the German unemployment rate, on a seasonally adjusted basis, fell to 6.8% for December from a rate of 6.9% recorded in the previous month.
Market participants await the results of bond sales in the Eurozone this week, starting with the German and the French auctions on Wednesday and Thursday, respectively.
In the light of a sparse European economic calendar today, the Euro is anticipated to strengthen against the US Dollar, as we expect optimism surrounding the robust global economic data to be maintained.
Other Currencies – Highlights
The Australian Dollar has risen sharply against the US Dollar this morning buoyed by the prevailing “risk on” sentiment among traders and better than expected economic data in Australia.
The Australian Performance of Manufacturing Index climbed to its highest level since June 2011, setting an upbeat tone for the Aussie Dollar. Additionally, astrong Chinese manufacturing PMI further cemented gains for the Australian Dollar.
We anticipate the Aussie Dollar to trade higher against the US Dollar.
The Pound continues to weaken following disappointing UK retail sales data
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