Royal Alliance Capital Currency Report

Markets buoyed by US employment data.

An improving non-farm payrolls employment report helped spur global stockmarkets on Friday. Sentiment-driven currencies such as the Australian and New Zealand dollars benefited amid hopes of a brighter global economic outlook.

The pound reached intra-week highs of US$1.5883 versus the US dollar, a high not seen since November. However, the dollar pared some losses after Friday’s employment report. The US economy created a further 243,000 jobs in January, adding to gains made in November and December and easing the pressure on the Federal Reserve to take steps to help the economy.

Continuing delays in agreeing the latest Greek bailout prompted further euro uncertainty last week, helping the pound gain over a cent versus the single currency. Successful government bond auctions for both Germany and Portugal along with positive German manufacturing data buoyed the euro to mid-week highs of €1.1887. However, roles were soon reversed as attentions turned to the problems facing peripheral European economies.

Protracted talks between Greece and its private creditors continued throughout the week with no conclusive outcome weighing on the euro’s performance. The euro’s woes were compounded further as the Organisation for Economic Co-operation and Development (OECD) confirmed the planned €130 billion additional funding package would be insufficient, with international debt inspectors reported to have found a €15 billion ‘black hole’ in Greece’s public finances. Pressure mounts as Greece is required to pay €14.5 billion to current bond holders in mid-March.

Improved UK manufacturing data boosted the pound mid-week. Helped by rising orders, output and easing cost pressures, January’s manufacturing activity reached its highest point since April last year. Mortgage approvals data also rose during December, suggesting the pressure on the UK housing market is starting to ease.

Buoyant commodity prices helped the Australian dollar limit losses in the wake of relatively poor data. Australia’s housing price index dipped during the fourth quarter of 2011, whilst building permits data also declined in December. The Canadian economy stumbled in November, with its Gross Domestic Product (GDP) shrinking 0.1%. However, the disappointing result had a muted effect on the Canadian dollar as it finished the week almost half a cent better against the pound. Helped by buoyant investor sentiment and a rise in building permits, the New Zealand dollar hit intra-week highs of NZ$1.8871 against the pound. Sterling’s value fell below 12 South African rand for the first time since September 2011. Improving demand for the comparatively high-yields available from South Africa’s government bonds helped boost the rand.


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