Today's Interbank rates -
POUNDS TO US DOLLARS 1.5656
POUNDS TO EUROS 1.2006
POUNDS TO AUSTRALIAN DOLLARS 1.5784
EUROS TO US DOLLARS 1.3038
EUROS TO POUNDS 0.8328
EUROS TO AUSTRALIAN DOLLARS 1.3145
POUND HEADLINES:
- Sterling is looking well supported by a combination of rising UK rate expectations, some paring back of long USD positions, and persistent negative EUR sentiment. UK rate expectations may well continue for a little while, especially if next weeks CPI is strong, and for the moment this is seen as GBP positive, though in reality real UK rates remain the lowest of the major currencies, suggesting limited scope for GBP gains on this basis in the longer run.
- In terms of economic data, the UK trade figures are released today. Consistent with strong readings from the PMI and CBI surveys, we look for a narrowing in the visible trade balance to -£8.2 bn in November from -£8.5 bn in October. It is expected this trend will gather momentum over the coming year, as exporters benefit from sterling weakness and domestic demand remains soft.
- A new study has revealed that the jobs market is 'on the road to recovery', with a very strong rise in demand for staff. The survey of recruitment consultants and employers in December found permanent staff vacancies rising at their fastest level in four months. KPMG warns the future recovery is uncertain, as the governments austerity measures take effect.
- Today's Portuguese auction has been so well flagged it would be a major surprise if it were not gobbled up very easily. This is no doubt expected by the majority, but there may still be scope for a EUR bounce on the news. Tomorrow's Spanish auction will then be the instant focus, but this is likely to be similarly easily funded.
- Portugal is set to issue bonds due in 2014 and 2020 in a bid to raise between 750 million euros and 1.25 billion euros respectively.
- Portugal is likely to remain under pressure to accept financial assistance from the EU and IMF. In particular, investors remain nervous over the country's ability to meet its 2011 fiscal target.
- USD gains were limited to the JPY and CHF yesterday as risk appetite recovered after the dip in equities on Monday. There should be scope for a further risk recovery today if, as seems likely, the Portuguese auction attracts plenty of demand, but upside for the USD now looks more limited on such news as USD/JPY rallies tend to need rising US yields to drive them.
- Sterling/Dollar has been very steady this week although the pound is slowly climbing for its fourth consecutive day currently trading above 1.5650
- There are a number of US releases this afternoon although nothing major. Primary focus will be on the eurozone as debt auctions get underway.
Kris Charalambides
Tel: 0207 183 2790
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