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Daily currency report

Overview

Cable rose to one-month highs after opposing manufacturing data from the UK and US boosted sterling and weighed on the US dollar. The US currency has also fallen to six-week lows against the euro amid evidence that US fiscal cliff uncertainties are already damaging the US economy, and that the Federal Reserve may soon have to consider more stimulus. European officials are gathering, leaving UK construction PMI data and eurozone producer price inflation data as the highlights of the morning European session. The figures are unlikely to move currency markets but should help traders prepare for UK services data and the UK’s budget update. European Central Bank meeting and US non-farm payrolls data should also stay central to any price movements.

Sterling

Cable surged to its highest level in one-month and could head back towards highs seen on October 17, following a sudden pick-up in UK manufacturing activity and before data that is forecast to show Britain’s services sector expanding. Although CIPS’ manufacturing PMI for November stayed below the growth-indicating 50-mark, the survey rose from 47.3 to 49.1, its best level since August which helped ease concerns the British economy will shrink again in the fourth quarter.

US dollar

November’s US ISM manufacturing PMI unexpectedly sank to 49.5 from the previous month’s 51.7, which was the weakest reading in three years and signals a contracting industry. Worries US lawmakers may fail to agree a new fiscal plan ahead of January’s automatic fiscal policy shift, worth some $600 billion, was reportedly the main reason for the survey’s drop-off. The data sent the US dollar to six-week lows against the euro and to one-month lows against a basket of currencies.

Euro

The euro reached one-and-a-half-month highs against the US dollar following news detailing Greece’s plans to buy back some of its outstanding debt as part of the nation’s latest bailout conditions. Demand for eurozone government bonds increased as a result, a move that was also reinforced by Spain’s agreement to borrow around €40 billion to invest in its shattered banking sector. Greece and Spain’s tackling of their funding issues has allowed markets to focus more on US fiscal cliff negotiations and also on whether the Federal Reserve will react to US unemployment data.

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