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Daily currency report

Overview

The British pound is tackling more question marks about its reliability in currency markets after ratings agency, Standard & Poor’s, put Britain’s top AAA credit rating on negative watch. Cable has subsequently pulled away from six-week highs despite the Federal Reserve launching a more aggressive stimulus plan, and forecast-beating UK industrial data. The euro may find support after eurozone leaders meeting, maintained a push towards a more stable Government debt and banking landscape in Europe. US data on inflation and industrial output is due but investors appear more interested in comments from Washington with just weeks left before automatic spending cuts and tax hikes kick-in.

Sterling

Sterling has slipped to over one-week lows against the euro, a short distance from its October troughs, and is in danger of losing further ground after ratings agency, Standard & Poor’s, downgraded Britain’s triple-A credit score to a negative outlook. This now puts the UK’s highly-rated debt status on negative watch under all the major agencies, and comes as no surprise after Chancellor George Osborne unveiled his Autumn Statement in which he predicted a weak economic recovery and a more difficult outlook for deficit reduction. Sterling had found some support on optimism Britain’s industrial sector is performing better than expected.

US dollar

The US dollar stood firm as concerns about the US fiscal cliff continue to support defensive strategies. The US currency had taken a plunge just a day earlier, hitting six-week lows against the pound after the Federal Reserve decided to double its stimulus plan and also guaranteed to maintain ultra-loose monetary policy until US unemployment falls to 6.5 per cent. A rebound in US retail sales data to go alongside the second lowest weekly jobless claims number this year, also failed to motivate investors to take on a more expansive approach to trading.

Euro

Eurozone leaders meeting, took another step forward on measures designed to restore confidence in the euro area’s ability to ease government debt and banking risks, and agreed that Greece was meeting conditions attached to its bailout agreement. However, the single currency’s muted response in currency markets suggests investors are now more concerned with Europe’s economic outlook. Speculation the European Central Bank may cut interest rates next year and consider using negative interest rate methods on deposit accounts to keep banks lending is weighing on the single currency.

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