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Currency Report -13/Dec Sterling dips v US Dollar but holds firm V Euro.

Currency Report -13/Dec Sterling dips v US Dollar but holds firm V Euro.

 
Old Dec 13th 2013, 9:59 am
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Default Currency Report -13/Dec Sterling dips v US Dollar but holds firm V Euro.

UK News & Data releases

The Sterling to US dollar exchange rate slipped lower in common with most currencies against the USD, but UK yields rose more in line with US yields yesterday, perhaps helped by the comments from MPC member Weale indicating the potential for an early rise in rates if the unemployment rate dropped through the 7% threshold. Most expect good support to be found above $1.6250.

USA News & Data releases

The USD surprised almost every analysts and managed some general strength yesterday, helped by stronger than expected retail sales data and slightly firmer US short end yields, and with no significant data today it seems unlikely that this firmness will reverse. The focus will now be on the prospect of Fed tapering at next week’s FOMC, and recent firmer data and some hawkish Fed comments (though these have been far form universal), as well as the indications of a Budget deal have increased the market’s perception of the risk of a tapering as early as this month, though at this stage it is still seen by most as only an outside chance.

Euro zone news & data releases

The Euro to US Dollar has potential to edge back towards $1.37 today following recent widening of yield spreads in the USD’s favour and the anticipation of the outside chance of tapering from the Fed next week. But seasonal Euro strength still suggests decent underlying support for the Euro, so there should be good support in the $1.37 region, though a break of this could see a move as low as $1.3635.

Australian news and data releases

The Aussie Dollar fell sharply yesterday afternoon in response to an interview with RBA governor Stevens in which he indicated a desire to see AUD/USD decline to 0.85. The sharpness of the AUD’s response was something of a surprise, as Stevens has been talking down the AUD for months, and his desire for a further decline was no secret. Even if it had been a surprise, it isn’t obvious why the market would respond, as the RBA is showing no real inclination to cut rates or to intervene to push the AUD lower. Furthermore, AUD/USD has already fallen 15% this year and is 20% below its highs, so the further 5% decline which Stevens is looking for can hardly be seen as relevant from a valuation perspective.
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