Rational FX: US trade balance expected at -$40Bn for December [11/02/2011]

Market Movers Yesterday

• Due to a drop in Industrial and manufacturing production in the UK the pound fell during early trading. However the drop was limited as markets waited for the interest rates decision.

• The BoE decided to keep interest rates on hold. Sterling was hardly affected as the decision was probably priced in. I believe the 1.61 level against the USD has been far exhausted prior to the BoE decision.

• From the US initial and continuing jobless claims produced positive figures with jobless claims reduced by 38K. Once again there was no movement however the fall could have once again been expected due to last week’s unemployment rate decline.

• NIESR, an academic forecasting body, calculated that gross domestic product grew by 0.6 percent in the month of January. Private-sector surveys have also pointed to a rapid rebound from the coldest December in 100 years. GBP/USD rallied towards the 1.61 late afternoon peaking at 1.6137.

Market Movers today

• Germany’s Consumer Price index had no effect on the currency markets due to a mix bag if data. CPI MoM reduced by 0.6% however the YoY increase promoted greater concerns of a hike in inflation.

• UK producer price index may paint a similar picture. Markets are expecting a drop in prices MoM even though the YoY is expected to rise by 0.2%. This increase may be inevitable as inflation continues to cause unrest for our domestic economy.

• US trade balance is expected at -$40.40Bn for December. Thinking back to the month of Christmas the US dollar was considerably strong trading as high as 1.5371 against the pound thus affecting the amount of exports. Let’s hope this does not give the Federal Reserve an excuse to start another currency war with China.

• Consumer confidence is set to improve merely. Reuters/Michigan consumer sentiment index is looking to release a figure of 74.6 Vs 74.5. If materialized the increase may still be far too low to encourage risk appetite.