Charles's Thoughts: Sterling had another mixed week. It gained a bit of ground against the € and lost a bit of ground against the US$. UK economic data released was variable with employment data surprising to the upside and November retails sales to the downside. We are now in the final throes to Christmas, a key trading period for retail worldwide and especially in the UK. The expectation is that retail sales will be ahead of last year and this is very important for the UK retail industry which has had significant problems this year and key to showing that the consumer is recovering from a very tough year. I think most of us will be looking forward to putting 2009 behind us and a much more productive 2010. rates on hold and not increasing the programme of quantitative easing.
The US$ is enjoying a period of strength gaining ground against sterling and the euro. No main reason seems to be the primary cause. In the US there is a hope that unemployment is slowing and close to its peak, which is clearly US$ supportive, but the greater influence may be that investors have been caught out by the US$ strength and continue to cover their exposure especially with the year end approaching. The Federal Reserve kept interest rates on hold which was as expected and reiterated that interest rates will be kept low for a while.
During the week we had a range of poor set of economic data out of the euro zone. This made the markets realise that the euro zones economic problems were far from over. One set of data showed that after five months of expansion industrial production fell in October by 0.6%. Then a survey of German business confidence came in lower than expected which was the third monthly fall in a row and further concerns are being raised with regard to the banks in the euro zone and the possibility of further bad debts and the need to raise additional capital. So a distinct wind change for the euro which has lost 5 cents plus from its recent high against the US$.
We also saw the Australian $ suffer as the market revised their longer term view on future Australian interest rate rises. This followed the release of the minutes of the last meeting of the Australian reserve bank which showed that the decision to increase was finely balanced and as such no further increases were likely in the next few months. Probably makes sense as there is still along way to go until normality returns.
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