Investors notch down their willingness to assume risk as dollar rallies

US Dollar:

Last week’s decline against the majors for the dollar was reversed late Friday as the greenback came storming back as investors locked in profits and risk sentiment cooled. Investors notched down their will-ingness to assume risk after the US Federal reserve’s easing last week. As long as there is no indication that the Fed is going to do a lot more, in the very near term, some of this dollar weakness will probably subside a little. Over a cent and a half was taken back against sterling, pushing GBP/USD down from close to the $1.63 handle down to $1.6150, and over three cents was taken off the euro from $1.4280 down to $1.3950. Friday’s payrolls report was good, but it is still too early to declare a victory on jobs and the weak US economy. Analysts were expecting a number of 60k for October but were instead digesting a much better number of 159,000. The big picture for this report points to a pickup in growth in the beginning of the fourth quarter. The notion that the economy might be double-dipping can now be tossed out the equation, for now.
No major data. Speakers 15.30: FOMC Member Bullard. 19.30: FOMC Member Warsh.

Pound:

The pound started Friday off trading higher against the majors, as the week seemed to be closing out sterling positive. We had seen a run close to the $1.63 handle on the dollar and GBP/EUR managed to trade in the mid 1.14 levels. Then came the US jobs data and a move back into the safe haven dollar as risk sentiment wavered, bringing cable down with it. As we open a fresh week, sterling, now lower against the dollar, is likely to consolidate with risks skewed lower. Sterling is undermined by slightly improved dollar sentiment and concern about UK austerity measures. But the pound gets support from global risk sentiment that is still positive overall. Against the single currency sterling could hold firm with the euro under pressure over worries about debt of pe¬ripheral eurozone nations. The Bank of England's quarterly inflation report will be the key UK event this week. The Monetary Policy Committee unveils its new inflation forecasts and gives more detail as to why they kept the policy unchanged and what the likely future path will be. The MPC’s decision not to follow the US Fed in em¬barking on a new bout of QE last week was justified by the recent news on the UK economy. But that doesn't mean the game of follow the Fed won’t be seen again in the not so distant future.
Data 23.01: BRC Retail Sales Monitor y/y & RICS House Price Balance expected –39% from –36%.

Euro:

The euro is sharply lower against the pound, dollar and yen as investors sold the single currency on wor¬ries over debt problems buffeting peripheral eurozone nations returns. European periphery default risk into the market had risen sharply over the last two weeks. This appeared to finally spill over to the euro, perhaps as the market turned its focus away from exclusively looking at the Fed and other central banks policy meetings. This week could see currencies finally turn the page on US QE and then turn to other issues, such as the eurozones simmering sovereign debt crises. We have now seen the euro fall over one and a half percent against sterling to fall to 0.8641, and a couple of cents was lost against the dollar as EUR/USD came crashing down to trade un¬der the $1.40 level. On Mondays economic agenda, German industrial production data are forecast to have grown at a decent rate, but well below average second-quarter growth, in line with the more timely manufactur¬ing purchasing managers index. Data 10.00: German Industrial Production m/m 0.6% from 1.7%. .

General:

• Currency traders are likely to tread cautiously ahead of the meeting of leaders from the G-20 nations in South Korea on Thursday and Friday. The impact may be that the market will position flat going into it.

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