Risk appetite back on display amid USD weakness

US Dollar:

Risk appetite was back on display in US afternoon trading and this has continued into Asian trade overnight, despite tensions China might be tightening over inflation worries. Disappointing CPI and housing data out of the US chased investors into risky assets across the board, with Asian equities up on average over 1%. This saw funds flow out of the safe haven dollar and yen, with the main beneficiary being sterling and the single currency. Cable recovered from its low of $1.5854 to trade over the $1.59 level. The dollars fall against the euro was surprising considering the problems affecting the single unit, with Ireland the centre of attention for now amid bailout speculation. The greenback has now given up over one and a half cents against the euro since Tuesday to push EUR/USD towards the $1.36 handle.
Data 13.30: Unemployment Claims 442k from 435k, Philly Fed Manufacturing Index 5.1 from 1.0.

Pound:

Sterling managed to put the brakes on its slide against the majors over the last couple of days after a run to safety was seen in the financial markets, with cable taking the biggest hit. We saw GBP/USD fall from over the $1.61 level down to $1.5837 as players ran for cover of the safe haven dollar. Even the euro managed to claw back some losses against the pounds, as a deal to sort our Irelands debt worries seemed to be drawing to a close, with GBP/EUR giving up over a cent since Tuesday. Overnight we saw a rise in risk appetite and the greenback was sold off, opening up the way for sterling to once again rise in value. There was also positive news on the state of the UK economy, as a survey reported that business investment is bouncing back, accord¬ing to the Bank of England, offering proof that the Government’s private-sector led recovery is starting to bear fruit. The Bank’s November business conditions survey found that “investment plans over the next twelve months were more positive than outturns had been over the past twelve months”, and that many companies were gradually increasing capital spending. There was also positive news on the number of people claiming unemployment benefit in the UK , as last months figure came in lower, with a drop of 3,700, defying predictions of an increase of 5,000 This also helped to stabilize the value of sterling and give it support against the dollar and euro. Data 09.30: Public Sector Net Borrowing 9.0B from 15.6B, Retail Sales m/m 0.5% from –0.2% & Prelim Mortgage Approvals.

Euro:

The euro is still centre of attention in the currency markets as the Ireland debt worries of ‘Will they or won’t they’ swallow the hard pill of taking help from Europe of external aid continues. The single currency did get some help in the form of a return of risk appetite in the financial markets as the dollar was sold off to the benefit of the euro. We have now seen EUR/USD take back over one and a half cents in the last couple of days. The euro did however found resistance against the pound, as sterling found support on the back of better than expected UK economic data. But the big issue remains Ireland, and how it is going to sort its debt issues out. As pressure builds from Europe for an immediate application for external aid, Dublin is campaigning to minimise any funding it draws down in a bid to ensure the terms are not too onerous. Today the EU and IMF arrived in Dublin to try to sort out how Ireland is going to deal with the problem of financing its debt, and currency markets will remain jittery on the back of this. Data 09.00 E/Zone Current Account –2.2B from –7.5B.

General:

• The Aussie dollars continues to remain bid as inflation in Australia remains on the rise. This story will continue to dominate if the issue of growth in Asia continues to be strong.

For more information or to request a call back click here