United States Dollar: Volumes in the FX market are light this morning and will likely be so over Thursday and Friday too. The dollar opens the week higher on safe haven demand though after the People’s Bank of China increased key one-year lending and deposit rates by 25 basis points to 5.81 percent on Christmas Day. This came in a bid to curb the country”s fastest inflation in two years, bringing about fears that a slowdown in the Chinese economy might undermine global growth as a whole. On Monday the release of the latest Hometrack survey of UK house prices which showed a decline for the sixth consecutive month (and forecast this to continue into 2011). It dragged on GBP/USD which opens today at 1.5370. The US was open yesterday despite closures throughout most of Europe. The main data release was US consumer confidence which unexpectedly fell in December. It has so far put a stop to the USD rally.
– We expect a range today in the GBP/USD rate of 1.5340 to 1.5400
Euro: Price action in EUR/USD has been volatile since the start of the week – the main force moving the pairing being supply and demand in low volume markets. Yesterday saw French Q3 GDP (final) revised down to +0.3% (from previous +0.4%) and the ECB saying that it failed to fully neutralize the extra liquidity created by its bond purchases for a second time since the program began in May – without the neutralization you essentially have quantitative easing, which is not good news for the euro. One of the key themes of the past two days has been the reluctance of investors to hold euros – their preference has been with AUD, CHF and gold, at almost any price; this saw the euro swiftly give up any gains that it made, with EUR/USD slipping from 1.3271 to 1.3093 in an almost straight line. GBP/EUR opens this morning at 1.1720, mildly lower from where it closed on Christmas Eve.
– We expect a range today in the GBP/EUR rate of 1.1700 to 1.1740
Aussie and Kiwi Dollars: AUD/USD opened this week 50 pips lower than its Christmas Eve New York close in interbank trade after the Chinese rate hike news. After the initial fall, the AUD was bolstered after a report showed that Chinese industrial companies’ profits rose 49.4% in the 11 months through November from a year earlier, illustrating that the Chinese demand for Australian commodities is still strong. The continual rally in the price of copper due to supply problems in Chile has helped AUD/USD stay above the parity level, with AUD/USD moving as high as 1.0153 in New York yesterday. The NZD has also benefitted as rising commodity prices boosted demand for currencies linked to raw material exports. Against the pound, the Aussie continues to dominate, with GBP/AUD falling to a fresh all time low of 1.5178 (0.6588) yesterday. GBP/AUD and GBP/NZD open today at 1.5175 and 2.0200 respectively.
– We expect a range today in the GBP/AUD rate of 1.5140 to 1.5240
– We expect a range today in the GBP/NZD rate of 2.0140 to 2.0240
