Market News

07/12/2009

Sterling ended last month vying with the US dollar for the dubious accolade of the weakest G10 currency. In the end, £-usd closed the month virtually unchanged with the pound a paltry 0.25% stronger but losses against other major trading partners were more notable.

GBP/USD

Data for the UK in November was generally firmer, as was the case in both the US and Euro-zone, as the global outlook continued to tentatively improve.
 
For the UK, the first revision to the previously disappointing GDP release for Q3 was eagerly awaited, but in the end was a relative non-event with the slightly upward revision to -0.3% as per consensus. Several releases underlined improving conditions with manufacturing pushing back into expansion territory while the service sector rose to 56.9, the highest reading since August 2007. Production figures for September were also strong although these were slightly tempered by downward revisions to the previous month. Retail sales were also slightly better than consensus while housing data for the month was mixed although the most up to date of the releases suggests a seasonal downturn in prices. On the negative side, public finances once again provided a horror show and the trade deficit for September widened further. Despite a period of sterling weakness, imports rose 7.5% while exports lagged behind with a 3.9% increase.

Policy wise, interest rates were held steady for the eighth consecutive month. The surprise outcome of the MPC meeting was reserved for the asset purchase program where a smaller than expected increase of £25bn was voted by consensus with one member voting for no change and one for a £40bn increase. Sterling was largely unaffected by the decision on the day although the meeting minutes later in the month produced a negative reaction.

In other news, debt worries in Dubai had an initial negative affect on the pound given the disproportionate exposure to the region by UK banks. The news has swiftly receded although, should there be any resurgence of these worries, sterling is likely to bear the brunt of the fallout.

On the technicals, the pound remains in no man’s land against the euro a little above 1.1000. From here, a break of 1.1125 is required to brighten the near term outlook with the long term moving averages around 1.1240/75 as the initial target ahead of 1.1300/20. To the downside, the 1.0975/25 zone is important with a fall through here putting the pound on the back foot once again with 1.0820/1.0790, 1.0755, and even a return to 1.0695/1.0620 a possibility.

GBP/EUR

On the dollar, the pound has been pretty much directionless for the last six months with the vast bulk of trading confined to a 1.5800/1.6750 range. While near term rallies cannot be discounted, momentum currently suggests the 1.6290/40 pivotal support zone comes under pressure. If broken, next levels are the psychological 1.6000 level then 1.5800.

Interest rates 0.50%
Unemployment Rate 7.8%
CPI Inflation +1.5 y/y to October ‘09
GDP -0.3% q/q to September ‘09
 

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