Daily currency report
Overview
Positive revisions to third quarter UK growth helped the pound maintain its flourishing finish heading into the Christmas break. However, after reaching multi-week highs against the US dollar and almost one-year peaks versus the euro, the pound may yet suffer from profit taking particularly as the outlook for the British economy is still very much uncertain. The euro’s decline seems to have slowed as year-end nears though the single currency is expected to endure another rollercoaster ride in 2012. A change in interest rate differentials led the single currency to an all-time low against the Australian dollar. The US dollar also edged lower after record low US jobless claims encouraged risk taking in both equity and currency markets. Japanese markets were closed for a holiday, adding to reduced liquidity which could fuel some choppy moves.
Sterling
The Office for National Statistics revised up UK third quarter growth figures, however, the previous quarter’s meagre increase was amended down to zero which does not augur well for the British economy heading into 2012 amid a very depressing global outlook. With very few places of sanctuary for investors, sterling goes into the Christmas break in a reasonable healthy shape helped in part by a 3.5 per cent advance against the euro since the beginning of December.
US dollar
The safe haven US dollar initially strengthened after a final print of third quarter US growth missed forecasts, suffering downward revisions from the initial estimate. The mood across equity and currency markets brightened a little thanks to a fall in weekly jobless claims to levels last seen in April 2008. In addition, there were some positive political developments as lawmakers finally agreed on issues over tax and unemployment benefits.
Euro
The euro’s attraction as a reserve currency has been a pillar of support in recent years while higher interest rates in comparison to its main trading rivals has been another key feature. However, the region’s government debt disaster has begun suffocating growth, forcing the European Central Bank into cutting interest rates and exploring other extraordinary policy measures. As a result of shifting interest rate differentials the single currency fell to an all-time record low against the Australian dollar. Wealthy sovereigns looking to protect their investments continue to soak up the shared currency at bargain prices. Other than that it is very difficult to find reasons to support a stronger euro going into 2012.
Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/