Yesterday markets effectively rejected the Euro following Friday’s EU summit; funds flew in abundance towards the US, UK and Japan; risk correlated assets suffered wounds of up-to-and-over 1%. In terms of the Euro, little is likely to change today; Spanish and Italian bonds sold off well but were yielding very high interest rates; Germany’s ZEW Economic Sentiment survey improved but remains at a negative level; confidence in the Euro looks set to remain bearish.
The US Federal Reserve monetary announcement, released at 19:30 GMT this evening, will give a good indication of US economic outlook. The interest rate is generally expected to remain at 0.25%, but the language and mood of the accompanying speech will provide the stimuli for investors; the US has performed surprisingly well as of late and this could be reflected in the announcement.
US economic data is currently outperforming analysts’ expectations by the most in 9 months and The Citigroup Economic Surprise Index, a daily measure of economic data versus economists’ projections, rose to 85.7 on December 2nd.
Unemployment was down to the lowest level in more than 2 years in November, and manufacturing is running at the fastest pace in 5 months. 104,000 labour jobs were added in August, payrolls increased by 231,000 in September and October and initial claims for jobless benefits fell by 381,000 in the first week of December.
The positive economic data emanating from the US economy should keep the vehicle afloat; the Dollar is far from reaching astronomical levels, but it is fairly safe from a damaging crash landing. Asset purchasing in the form of Quantitative Easing is unlikely (but remains a possibility) due to the current stability of the US in the face of Eurozone market chaos.
The Pound is currently trading at 1.559 against the Dollar. The Dollar could rally if the Federal Reserve monetary announcement echoes US growth, but then again if the Fed focus on the global financial market, EU uncertainty could bring the Dollar down on the basis of an overarching fear factor. The former seems more likely given the atmosphere of distrust and disdain regarding the Eurozone; expect larger fluctuations in the Fiber (EUR/USD) than the Cable (GBP/USD).
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