Currencies: Where to for sterling, euro and US dollar?

Sterling

Sterling continued to lose ground against the US dollar on Friday dropping to 1.60; but, traded in a relatively narrow range against the majority of currencies. Rumours continue to build that the UK will soon lose its gold plated AAA rating; however, a lot of economists are suggesting this is already priced into the market and won't really affect the UK's economy due to only 7 countries currently having a “stable outlook”.

On the data front, the change in manufacturing production fell sharply by 1.3% when only a 0.2% drop had been anticipated. The Governor of the Bank of England is speaking this week and we will also have the benchmark 10-year bond auction. Unemployment data will be one of the key releases this week and will include figures showing the change in the number of people claiming unemployment benefits.




Euro

It was once again a tough day for the euro on Friday, continuing to lose ground against all major peers. Increasing speculation that the European Central Bank may be in support of an interest rate cut if the Eurozone's economic performance doesn’t show signs of improving decreased demand for the 17-nation currency. News that German industrial production contracted more than expected - total output shrunk by 2.6% - did little to restore confidence, and saw the currency fall to a 2-week low versus the US dollar.

This week sees the release of German economic sentiment and Manufacturing Purchase Manager Index (PMI); should these come in lower than forecast, expect the euro to continue its slide against its major trading partners. Eyes will also be on the EU economic summit where heads of state are set to continue discussions over a proposed banking union.

US dollar

The US dollar strengthened on Friday due to an increase in risk aversion in the global markets following news being released that more members of the ECB are in favour of rate cut in 2013. Furthermore, data released on Friday showed that both the non-farm employment change and unemployment rate in the US came out better than forecast, with employers adding more jobs than forecast last month and the unemployment rate dropping to almost a four year low.

We have a quiet day today in terms of data released in the US, but this week we will see the US trade balance as well as the Federal Open Market Committee statement and economic projections. Towards the back end of this week we will also see Core Retail Sales and also Core Consumer Price Index data out.

Worldwide

Elsewhere, the South African rand registered is highest weekly gain since September on Friday. A gain of 2.3% for the week could have been higher if not for a depreciation against the USD on Friday.

The Canadian dollar dropped on Friday following employment data coming out of both the US and Canada.

A 7.2% unemployment rate was received positively on the back of an expected 7.4% reading. Overnight we had the release of trade balance data rom China and we have more data out from China later on in the week in the form of Manufacturing PMI. The Governor of the Reserve Bank of Australia will be speaking this week and we will also see the Swiss National Bank (SNB) decision on interest rate.


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