Countdown to 2016 Starts
The Pound – US Dollar currency pair looks set to remain above the 1.48 mark on a fairly subdued note ahead of the New Year break and given the absence of any UK economic news. Today’s only data will come from across the Atlantic in the form of weekly jobless claims and the Chicago PMI index due for release in a few hours.
As the New Year arrives, the Bank of England (BoE) will continue to remain in a challenging position as any further slowing in global growth could well diminish what little appetite there might be for a rate rise. Meanwhile, both the US Federal Reserve and the European Central Bank (ECB) appears ready to embark on their decisions regarding their respective monetary policy outlook in 2016.
Pound Sterling – UK Markets
The Pound has managed to erase some of its early losses against the US Dollar in quiet, thin trade this morning. As the curtains roll down for New Year celebrations, there is no UK economic data or events of notable interest that could trigger volatility in trading in the Pound against the major currencies. Britain’s economic docket will pick up pace only in the first week of the next year, when the December version of the manufacturing activity survey will be published, along with the Bank of England’s (BoE) report on lending to individuals for November.
Overall this week, investor sentiment for the Pound was rather subdued when compared to the US Dollar as focus is on the Federal Reserve’s future path of interest rate rise. Also, one of the factors behind Sterling’s underperformance against the majors was the recent downward revision of UK’s third quarter GDP growth rate. It is likely that speculation that the BoE is close to raising its benchmark interest rate in the first half of the next year has been put to rest by the UK currency traders.
US Dollar – US Markets
The US Dollar is trading in a tight range against the shared currency and the Pound this morning, as investors remain on the sidelines amid lack of fundamental triggers and limited trading activity heading into New Year celebrations. From minimal data scheduled for release later today in the US, investor focus will be on initial claims for unemployment benefits in the previous week which are expected to slightly surge upwards, but will remain at a level suggesting a quite healthy labour market. Additionally, the Chicago PMI report is expected to show some improvement in the contracted business conditions. However, a reading below 50 will suggest that activity remained tepid at the end of the final quarter of this year.
Yesterday, the greenback held on to its gains against the Euro even after data showed that pending home sales in the US unexpectedly fell for the third time in four months in November, hinting at a slowdown in the US housing market towards the end of the year.
Euro – European Markets
With most currency traders closing their book for the year 2015, trading in the major currency pairs remains tight, revealing little interest among investors to create fresh positions. The Euro is largely looking for direction against the US Dollar this morning, after gaining ground yesterday. However, the currency pair today lacks momentum to move further ahead from yesterday’s level. The current weakness in the Euro against the US Dollar can also be attributed to the almost empty European economic calendar.
Yesterday, there was little in way of significant economic data in Europe, but reports still suggested that the Euro zone continues to grow modestly heading into 2016. Consumer prices in Spain, the fourth largest economy in Euro zone, came in flat for December from a year ago, defying expectations of an increase. However, it was still the second highest reading since June 2014, hinting that deflationary pressures might be fading. Also, the M3 money supply in the Euro zone rose in November, indicating that the rising quantities of currency in the financial system could eventually lead to an uptick in price pressures.
Other Currencies – Highlights
The Aussie Dollar is currently trading on a firmer footing against the greenback, heading towards the closure of 2015 and amid light trading volumes as most traders are already off for New Year celebrations. The Australian Dollar earlier today reversed a temporary dip against the US Dollar and has largely shrugged off the recent slump in oil prices as energy traders remain cautious of negative global headwinds that will likely continue in the year ahead. Early in the day, economic data showed that Australia’s private sector credit grew less than expected for November. The Aussie Dollar traders seemed to have largely ignored this figure. However if business lending continues to slow for a longer term, it could make the Reserve Bank of Australia concerned that has been wanting to see non-mining business investment to pick up to limit the nation’s dependence on mining and related business.
In the session ahead, trading activity will mostly be limited as most of the markets have already closed early on account of New Year’s Eve. As a result, the last US economic releases before 2015 will be in focus to gauge the direction in the currency pair.