The pound started the week at its highest level against the euro since September 2010 despite decidedly mixed economic data but fell away as the markets took note of action by the European Central Bank (ECB) in support of Portugal.
On the plus side, the Engineering Employers’ Federation (EEF) reported that the UK’s resurgent manufacturers expect growth to continue throughout 2011, led by strong exports to emerging markets.
On the negative side, the Confederation of British Industry reported that employment in the financial services industry fell at its fastest rate in 17 years; the Halifax reported that UK house prices have continued to slip, falling by 1.3% in December from the previous month. The Halifax said the average property ended the year 1.6% cheaper than at the beginning of 2010 but said the decline was less than falls seen in the second half of 2008. Halifax said it expected “limited movement in house prices during 2011″ as interest rates were “likely to remain very low for some time”; the British Chambers of Commerce (BCC) reported that UK economic growth slowed in the fourth quarter of 2010, “raising concerns about a sustainable recovery” and the British Retail Consortium (BRC) said sales on the UK High Street fell last month compared with a year earlier. The BRC said sales in December 2010 on a like-for-like basis were 0.3% lower than the same month in 2009. The snow and concerns about job security were the main culprits behind the fall according to the BRC’s findings.
Against the US dollar, the pound continues to benefit from the disappointment felt in the markets from Friday’s non-farm payroll figures which came in well below expectations.
Against the high yielding, commodity driven currencies like the Australian dollar yesterday, the pound made gains on the back of an increase in risk aversion in the world’s stock markets as fears increase of a slowdown in Chinese economic activity and of the spread of contagion from the euro zone sovereign debt crisis.
The Australian dollar remains on the ‘back foot’ with the worst flooding in Queensland in over 50 years pushing up the nation’s fruit and vegetable prices by as much as 30%, lifting inflation and potentially dampening retail spending as well as affecting exports. Economists and the country’s top supermarket chains said new, torrential flooding and rains across farmlands in south eastern Queensland in the past day had damaged crops and cut roads, preventing moving goods to market.
Australian retailers have already endured a tough few months as cautious consumers spend less and save more. Retail sales in November rose a moderate 0.3% and were up just 1.3% from a year earlier, compared with historic growth of about 6% per year. Queensland accounts for 28% of the country’s fruit and vegetable production by value, according to Commonwealth Bank economists, and much of the state is under water in the worst floods in over 118 years. The state’s floods have at times affected an area the size of France and Germany combined and at least 12 people have been killed.
Commentary by Tony Redondo, Senior Trader at Torfx.
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
