Cautious Market

Worries over the European debt crisis have abated somewhat this morning. This follows yesterday’s market concern over higher than expected borrowing costs at the French bond auction. Markets now await the release of crucial consumer confidence, retail sales and unemployment data from the Eurozone later today. Across the Atlantic, monthly non-farm payrolls data today is expected to confirm the uptrend in the economy. At home, with a quiet day in terms of economic releases, Sterling is expected to take direction from releases in the Eurozone and the US.

Pound Sterling – UK Markets

In early trading the Pound has stablised against the US Dollar and maintains a strong position against the Euro. The UK economy has shown some resilience this week, as evidenced by the release of positive manufacturing, construction and services PMI. However, this has failed to translate into substantial gains for Sterling as these positive indicators were overshadowed by renewed concerns over the Eurozone. Traders will now look at next week’s crucial economic calendar which includes manufacturing and industrial production data and the BoE rate setting meeting. With no major economic releases scheduled for today, Sterling is expected to take direction from the releases in the Eurozone and the US.

US Dollar – US Markets

The US Dollar has pared its early gains against the majors and is trading slightly lower. A higher-than-expected rise in ADP private sector employment for December yesterday, coupled with a drop in jobless claims, has buoyed market sentiment towards economic recovery, ahead of today’s payrolls report. Market participants predict an improvement in non-farm payrolls, with a marginal rise in the unemployment rate to 8.7% for December. We expect the US Dollar to take further direction against the majors from payrolls data and a slew of economic releases from across the Eurozone.

Euro – European Markets

Earlier today the Euro was lower against the US Dollar amid worries over the contagion effect of the Eurozone debt crisis. This follows the rise in French bond yields at an auction yesterday. Not helping matters were remarks made by a senior ECB official that Germany remains steadfast in its opposition to expand the European emergency fund. As we approach the final trading day of the week there are a number of important economic releases scheduled in the Eurozone for later today. These are expected to keep traders on edge. Markets keenly await consumer confidence data which is expected to record a multi-year low reading for December. Other releases, likely to influence trading sentiment, include the Eurozone unemployment rate and retail sales.

Other Currencies – Highlights

The Australian Dollar is trading marginally lower against the US Dollar this morning as trading sentiment in the currency was affected by worse-than-expected economic releases from Australia yesterday. This data indicated that Australian trade surplus declined unexpectedly to A$1.38 billion for November while the services sector contracted for the third consecutive month in December.