Sterling vs US Dollar rates have fallen during the week while the Euro has made slight gains against the Pound
by Josh Ferry Woodard
Sterling / Euro and US Dollar exchange rates
If each day of this week were to be described as a character from Roald Dahl’s Charlie and the Chocolate Factory in terms of data releases, then yesterday would be Charlie Bucket; poor and penniless, and today would most definitely be Augustus Gloop. This week has been practically devoid of economic data thus far, but like the ‘enormously fat, gluttonous, and greedy boy,’ today has hogged all of the financial releases.
The headline grabbers are without a doubt the Central Banks’ rate decisions, with both the ECB and the BoE set to announce whether they will drop interest rates even further. The general market consensus says they will both maintain the current rates of 1.0% ECB and 0.50% BoE. The Pound suffered yesterday against the majors as cautious investors were reluctant to place their funds into Sterling ahead of the rate decision. Weaker than expected November Trade Balance figures hindered the Pound but it seems likely that markets were acting anxiously in the build-up to an important day that also features data regarding the BoE’s asset purchasing scheme.
German Consumer Price Index improved by 0.7% in December and as a result the Euro has made a slight gain against the Pound with the exchange rate falling from 1.210 to 1.203. UK Industrial Production dropped by more than expected in November falling -3.1% year on year compared to an expected fall of -2.2%. The drop in Industrial Production was mirrored in the 17-nation bloc with Euro figures also faring worse than expected, falling by -0.3% compared to a projected growth of that much (0.3%).
US Initial Jobless Claims, Continuing Jobless Claims, and Retails Sales (including and excluding Autos), look set to remain at a similar level, but an unexpected result can never be discounted. US Business Inventories are set to fall from 0.8% growth to 0.4% but the Monthly Budget Statement is predicted to improve from $-137.3 billion down to $-79.0 billion, as the US economy shows slight signs of picking up. The Pound to US Dollar exchange rate has fallen this week from highs around 1.495 to a modest 1.534 as markets await today’s releases.
With Quantitative Easing predicted to remain at its current level of £275 billion in the UK, the primary focus of the day may rest on ECB President Mario Draghi’s speech. Draghi will be expected to address the 3-year-long-term-refinancing operation (LTRO) and comment on its success; to date reports have suggested that the €489 billion of bank loans have failed to reach credit markets and have actually been re-deposited in the European Central Bank itself. If Draghi can convince markets that the LTRO can actually improve liquidity, it could see the Euro receive some support. But the most likely outcome is a negative approach in which he reiterates the severity of the growing crisis and offers some minor hope; this will not please markets and could see the Euro fall against both the Pound and the US Dollar.
Today’s Exchange Rate Data
EU 07:00 – German Consumer Price Index (December)
UK 09:30 – UK Industrial Production (November)
UK 12:00 – BoE Interest Rate Decision (January 12th)
UK 12:00 – BoE Asset Purchase Facility (January)
EU 12:45 – ECB Interest Rate Decision (January)
EU 13:30 – ECB President Draghi’s Speech (January)
US 19:00 – US Monthly Budget Statement (December)
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