The currency blog

More weakness for the USD yesterday across the markets except against the Yen. This push on USD weakness relented in later trading after the Fed beige book posted a slightly bullish report for the US economy. Today is a big day for the USD with the eagerly awaited retail sales data and corporate earnings reported by Intel…the USD will need good news from both to stage a recovery and prevent further selling pressure.

The big winner in the markets was again the Aussie. The catalyst was better than expected jobs data; the unemployment rate dropped to 5.5% from 5.8% from the month earlier as the number of people in work rose by 35,200 in December. Australia is the stand out performer of G20 nations and has rallied on stronger commodities and increased demand from China. It will be interesting to see if the RBA raise interest rates at their next meeting; if so we could see AUD/USD hit parity and GBP/USD mover into the 1.60’s.

Sterling has benefited on feedback from the National Institute of Economic and Social Research (NIESR) which yesterday estimated Q4 GDP at +0.3% and thus out of recession. However it was still the worst year for the UK economy since 1921. A good week so far for sterling which was initially buoyed by hawkish comments from MPC member Andrew Sentance. Surely we are due for some bad news now…or is it the start of a sustained rally…

The big data for today is the ECB interest rate decision. No change is expected but the markets will be looking for any comments on Greece and further fiscal problems for the Eurozone. In all probability Trichet will not give too much away in relation to exit strategies and future policy for the ECB…however the added pressure due to Greece and unemployment hitting 10% should lead to more probing in the statement.

Discuss on this on the Currency Exchange Forum