Friday, January 21, 2011

Morning Currency Wrap for Friday January 21, 2011


The Euro Recaptures November Levels  - The Euro rose against the USD, surpassing a level last hit in November of last year, after the Ifo institute’s business climate index showed that business confidence in Germany surpassed analysts’ forecasts and rose to a record high in January. That’s the highest since records for a reunified Germany began in 1991. This week's strong advance for the Euro came despite the inability of European policy makers to find a long-term solution to deal with the sovereign-debt crisis. The idea that keeps hitting the news wires is whether the euro-region rescue fund should be able to provide credit to Greece to buy back its bonds from the secondary market at a discounted price, thereby reducing its service costs. Elsewhere, the GBP was weaker against both the USD and the Euro after a report showed U.K. retail sales slumped the most on record for a December as heavy snowfalls and price rises deterred consumers. The report might take some of the pressure off the Bank of England to lift rates. With rising inflation and a slowing economy, the UK is looking at a stagflation scenario. In Asia, the AUD and NZD continue to be under pressure after strong Chinese data on Wednesday renewed worries the world's second-biggest economy could take a tougher stance on fighting inflation this year, and ultimately slow its demand for commodities. Also weighing on the NZD was a weak retail sales report adding to speculation that a faltering recovery will deter the Reserve Bank from raising interest rates. In Canada, the CAD has shaken off the malaise of possible aggressive monetary response by Chinese officials and managed to regain parity. Commodity prices have slowly started to recover following news that Q4 economic growth in China was stronger than expected. Helping the CAD was news that November retail sales increased 1.3% to $37.3 billion, reflecting growth at most store types. This marks the sixth consecutive monthly rise in sales and was the largest increase since March 2010.

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