European Central Bank raises interest rate in Eurozone by 0.25% I lost a ?5 bet US employment data is the main focus of today
Market Overview
Europe proved to be the centre of the universe yesterday. While T Blair, who famously promised that the UK’s rebate “was not open for negotiation”, he began negotiating some of it away yesterday in Budapest and Jean-Claude Trichet cost me a Fiver when he raised the Eurozone base rate by 0.25%. To be fair everyone except me expected the rate rise and even more clearly, everyone including me thinks it is a wrong decision. It also smacks of compromise after some ECB council members wanted no change and some wanted a 0.5% hike. The fact that Trichet pooh poohed any notion of further hikes would suggest we will get a further interest rate hike in the spring next year. The net result was a weakening of the Euro as traders who had already bought the rumour, sold the currency after the fact. This allowed Sterling to rise to a 2-week high against the Euro because, when all is said and done, a 2.25% Eurozone interest rate is still only half that of the 4.5% UK rate. However, the Pound started the day weaker after the CBI reported the sharpest drop in retail volumes in 22 years but that paled into insignificance as the day wore on. The Pound is also being supported by Merger and Acquisition news but that can’t be relied upon in the longer term for obvious reasons. Today is all about stronger US employment numbers and that can only push Sterling – US Dollar lower and profit taking on the GBPEUR moves should pull this pair down as well. Have a great weekend and I recommend mulled wine, nuts and chocolate after a hard day at the shops.
If You Are Migrating - A Little More Detail
Ask Vicky Pollard about the Sterling – South African Rand exchange rate and she would tell you “yeah but no but yeah but it’s just like well volatile”. The price of gold hit $508 an ounce and that meant that the gold exporting nations were bound to see their currencies strengthen but the GBPZAR exchange rate broke below a level that has supported it for the whole of this year and that took it out of the upward trend that has contained this pair all year. With commodities so strong generally and metals in permanent demand by China, the advance in the Rand is almost inevitable. Add to this the fact that Sterling is sitting precariously on the edge of a decline as retail expenditure is under pressure even during the Christmas excess season and the decline in GBPZAR is even more certain. The next target is most probably the bottom of the range that has been the support for 6 years and that is currently at R10.84. Sadly, for anyone buying Rand, the downward momentum is stealing your funds day by day but all that has happened is that your tactics have had to change. Early booking is back in fashion after a year in which buying at the top of the range has been quite easy. Call me if this needs further explanation.
If You Are Buying Property Overseas - A Little More Detail
The US Dollar is, as mentioned above, the main focus for today. US employment figures are always watched closely because they are the first glimpse we will get of the of the performance of the US economy throughout November. Most data calculations take longer to complete but counting jobs and unemployment levels is a straightforward process which means that the first Friday of each month becomes ‘Non-farm payrolls day’. The US economy is expected to have created between 250,000 and 300,000 fresh jobs in November and that will be yet another boost for growth and another reason for the Federal Reserve to keep raising US interest rates. It is widely expected that the US base rate will reach 4.5% within a couple of months and this, coupled with UK rates on hold and EU rates only trickling higher, should give the US Dollar another boost. Watch the $1.7330 level as the very top of this range and the $1.7030 level as the bottom. A breach of either end of the channel will set the direction for the GBPUSD for a few months to come. I have a very strong suspicion that the move will be downward and that Euro – Dollar is headed lower as well.
Today's Major Economic Releases
MKT GMT Data / Event Last Expected
US 13.30 Change in Non-Farm Payrolls (Nov) 56K 215K US 13.30 Unemployment Rate (Nov) 5.0% 5.0% US 13.30 Avg. Hourly Earnings (MoM)(Nov) 0.5% 0.2%
Yesterday's Major Economic Releases
MKT GMT Data/Event Actual Last Expected
Eurozone 12.45 ECB Interest Rate Announcement 2.25% 2.00% 2.25% US 13.30 Initial Jobless Claims 320,000 310,000 315,000 US 15.00 ISM Purchasing Managers Index 58.1 59.1 57.7
Quote of the day
Nappies (Diapers) and government need to be changed frequently for much the same reason. Anon
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