The UK data is public sector borrowing

FX Market Overview

The news in the UK is still snow, more snow, a little bit more snow and then closed airports, delayed trains, roadblocks and a lunar eclipse which you can’t see through the snow. Other than these, everything is great. The markets are in a typically unsettled end of year trading dilemma as traders and investors slope away for the Christmas break leaving those who are at their desks free rein to shuffle exchange rates at will. In thinly traded markets, transactions which would normally be unnoticed in the vast currency market ocean are sometimes quite influential. 

The influences on the market are still clearly focussed on the Euro. The fact that the European Central Bank has reduced the volume of bonds it is buying in order to slow the money supply is picked up by a whole heap of news reporters. The lack of data in yesterday’s diary meant this was perhaps the most interesting story of the day. Today’s diary is a tad fuller so perhaps emphasis will shift to the UK and Canada for 24 hours or so. 

The UK data is public sector borrowing. The figures are obviously likely to be poor and will no doubt get worse in the months ahead as spending cuts start to bite. In spite of this Sterling had a reasonable day, strengthening to the top of its range against the Euro and maintaining an edgy status quo against the US Dollar. The Pound did slide against the Australasian Dollars which continue to have a certain allure for investors due to their high interest rate returns. The overnight release of the minutes from the last Reserve Bank of Australia’ meeting kept the strengthening pressure on the Aussie Dollar in particular. At their last meeting the RBA left their base rate on hold following a sequence of earlier interest rate hikes. Their notes suggest not only will the base rate remain at 4.75% for the time being but that the pressure is for hikes at some stage in the middle of 2011 rather than any kind of cut. Obviously China and commodity markets will have some influence on that but, all things being equal, the Australian Dollar has plenty more room to strengthen in the months ahead and that is certainly not what you want to hear if you are trying to import from Australia or to migrate there. In both cases, risk management is the key. 

The US Dollar was a tad stronger overall ahead of this week’s healthy volume of US data releases. Tomorrow’s economic growth data is likely to revised upward and Friday’s durable goods orders data is expected to be quite upbeat as well so US Dollar buyers may want to do something today in order to avoid the risk of further declines in the Sterling - US 2 Dollar rate.

The other currency in the limelight is the Canadian Dollar which will be ruffled by the Canadian inflation and retail sales data this afternoon. Both pieces of data are expected to show a slight decrease; so slightly lower high street prices and slightly lower take up but the strength of the US Dollar may well be the Canadian Dollar’s saving grace and further strength is expected here, so please don’t hang your hat on a weaker CAD. 

And that is about that for the day; a short report to reflect the fact that this is the shortest day of the year. In fact the day is so short that I may not have time to finish today’s Daily Currency Insight.

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