Daily currency report
Overview
Despite ongoing concerns in Europe and announcements from the World Bank and International Monetary Fund, both lowering global growth projections, investors still remain somewhat bearish towards the safe haven US dollar. Alongside its monetary policy decision, the US Federal Reserve is set to announce individual interest rate forecasts for the very first time. The prospect of policymakers keeping rates near zero for longer than expected sent the Pound sharply higher to almost three-week peaks. The pound is also up against the Japanese yen after Japan registered its first annual trade deficit in more than 30 years. The euro also posted gains against its main rivals thanks to forecast-beating PMI reports on Europe’s manufacturing and services sectors. In other news, the Australian dollar is benefiting from weaker inflation data which has dampened calls for the Reserve Bank of Australian to cut interest rates again. Meanwhile, its commodity-linked counterpart, the Canadian dollar, could re-visit September 2011 highs against the pound after local retail sales data beat consensus forecasts.
Sterling
Cable is trading close to its highest level in almost three weeks as investors grow nervous ahead of the US Federal Reserve’s monetary policy announcement. The prospect of US interest rates staying close to zero for longer is making sterling look a little more attractive in terms of yields. However, domestically it was another day to forget for the pound as data on government borrowing for the month December beat market forecasts, suggesting Britain’s public finances are improving. On the other hand, the government’s debt levels broke through £1 trillion for the very first time and with the UK economy in danger of slipping back into recession, Britain’s top credit rating could be at risk if the situation develops.
US dollar
The US Federal Open Market Committee will wrap up its two-day monetary policy and is expected to signal that interest rates will remain close to zero until at least 2013 or possibly longer in an effort to increase transparency in markets, lower volatility and ultimately encourage business spending.
Euro
Key measures of eurozone manufacturing and services sector health came in above forecast, helping the euro climb to December 28th highs versus the Japanese yen and to near three-week peaks against the US dollar. Still, the Greek saga rumbles on and it may not be long before traders begin to price in the real possibility of Athens defaulting on its debt obligations.
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