Currency Update – Monday 1st December

Today the US returns from its Thanksgiving Holiday & the UK starts its count down to the festive season, you know its the 1st of December when the 1st song on the radio this morning is Shaking Stevens.

It seems the US experienced a fairly bleak Black Friday, with talk of weak retail spending over the holiday weekend, which historically has been the busiest retail trading date in the US, to add to this the US has a week of Primary Data releases that are anticipated will point to a further weakening in their economy, it could be a bit of a rough ride over the next few days for the Dollar.

The predicted UK interest rate cut this week of up to 100 bp is already priced into the market, as the fiscal easing announced in the PBR last week has put the pressure on the MPC to tackle deflation issues. It is expected that, along with the BoE, most central banks will be bold in their actions in the face of continued fears of a global depression.

The market has also priced in a 75bp cut by the ECB this week to take their lending rate to 2.5%, however it is less clear as to whether they will opt for a 50bp or a 75bp cut, yet recent figures would suggest that a 50bp cut could be too little.

Both the UK Mortgage lending figures & PMI data released today shows a further deterioration of the UK economy. The PMI data has registered record lows & Mortgage Approvals were down again, as such Sterling has suffered, currently trading below 1.19 against the Euro & around 1.5050 against the Dollar.

There is little EU data out for the remainder if the week other than the rate announcement, it is a similar picture for the UK, however, given the markets have priced in the UK & ECB rate cuts, it will be the US data that is likely to provide the majority of direction in the markets this week.

Hazel Wilkinson |Treasury Solutions | nabCapital