Several better-than-expected economic reports from the world’s leading economies helped fuel a rally in risky assets which allowed the euro a little more reprieve. Following on from above-forecast Chinese growth data, an index of German investor sentiment posted a record month-on-month increase while a report on US manufacturing in the New York region jumped to a nine-month high. The biggest winners in currency markets were the Australian and New Zealand dollars, both surging to multi-week highs against the US dollar. Those closely linked to commodity exports such as the Swedish Krona and Canadian dollar also took advantage, thanks largely to China’s incredible hunger for raw materials which looks set to continue this year. Sterling failed to take advantage of the markets improved tone after a sharp fall in UK inflation strengthened calls for more Bank of England stimulus. The pound could possibly lose further ground against the euro and US dollar if unemployment data show a marked deterioration in Britain’s stressed labour market. However, the euros upside potential is somewhat limited as Greece resumes debt talks with its creditors.
Sterling
As expected, annual UK consumer price inflation fell sharply in December for the fourth consecutive month, giving Bank of England policymakers more capacity to stimulate growth through additional quantitative easing if necessary. The real possibility of more money-printing is therefore keeping sterling extremely vulnerable in spite of the much-improved tone in financial markets. The pound still remains within striking distance of July 2010 lows versus the US dollar.
US dollar
The US dollar took a broad tumble, hitting a 10-week low against its Australian namesake as investors piled back into risky assets. Above-forecast growth data from the Chinese economy had initially sparked the rally which was then supported by a robust investor sentiment index from Europe’s leading economy, Germany.
Euro
The euro has recorded back-to-back daily gains against its most-traded counterparts, easing worries about the impact of Standard & Poor’s decision to downgrade the credit rating of nine eurozone members as well as Europe’s emergency bailout fund. That feeling was reflected in a reasonably successful debt auction held by Spain. Though modest, the single currency’s move higher was also helped by a record increase in investor sentiment data from the German economy. Although traders have allowed the euro some much needed respite, the gift may be short-lived as Greece resumes debt talks. Any sign of Athens being unable to convince investors to voluntarily accept losses could fuel talk of the country’s unimaginable eurozone exit.
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