HiFX Midweek Market Update 12-12-2012

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HiFX Midweek Market Update 12-12-2012

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Old 12th December 2012, 03:38 PM
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Default HiFX Midweek Market Update 12-12-2012

A raft of news to discuss this week from both the UK and Europe. The bad news is however, that GBP/EUR is still firmly entrenched within the 1.2250-1.2750 trading range and more recently this has contracted to 1.2250-1.2550.

From the UK;

Last week’s autumn statement by chancellor George Osborne highlighted that the UK economy is taking longer than expected to recover, and warned that the UK would face further spending cuts to get the country’s finances under control. Austerity measures will be extended to 2018 and the government looks set to miss key debt-reduction targets as growth falters.

Following the chancellors statement Britain’s triple-A credit rating came under threat. The effect of the weaker official growth forecasts is expected to increase UK debt by £105bn by 2016-17 and missing the chancellor’s target to reduce public debt by 2015-16. The ratings agency Fitch, said that “missing the target weakens the credibility of UKs fiscal framework, which is one of the factors supporting the rating.” In turn, a demotion of the UK’s credit rating could lead to higher borrowing costs, and so begins the cycle of paying more to borrow, and borrowing more to pay the increased costs.

Trade figures for the UK also showed that the country’s trade deficit – the gap between goods and services imported and exported – widened markedly to £3.6bn from £2.5bn the previous month.

Last Thursday’s Bank of England meeting passed without any surprise as the MPC held interest rates at 0.5pc and quantitative easing at £375billion as expected.

Range of the week: 1.2273 – 1.2444
Variance on £10k: €171

The economic focus of the UK mid-late last week had put the pound on the back foot with moves towards the bottom of our current trading range however, the focus has subsequently shifted over to Europe.

No change for interest rates announced by the European Central Bank with a revision on growth forecasts for this year and next being cut as “economic weakness extends into 2013.” Also, expectations that the bank had been ready to cut interest rates in the coming months have been dampened. The European Central Bank’s Chief Economist Peter Praet said the main issue at the moment was that the low interest rates were not filtering through to the real economy, but the situation was beginning to improve and there was currently no need for further ECB action.

Concerns for the euro zone recovery returned following the announcement that Mario Monti, the Italian Prime minister, would step down early after the latest budget passed through Parliament. As a respected economist he had been seen as one of the most important individuals in Europe’s plans to reduce its debt crisis and investors were spooked by his apparent early retirement from office.

Range of the week: 1.6001 – 1.6147
Variance on £10k: $146

US unemployment fell to a four year low at 7.7pc with the States adding 146,000 jobs in November.

Levels still fail to break the pivotal 1.60 as a resolution on the fiscal cliff still hangs in the balance.

Range of the week: 1.5292 – 1.5414
Variance on £10k: 122AUD

Range of the week: 1.9147 -1.9539
Variance on £10k: 392NZD

Currently testing the lows this morning with moves edging closer to the 1.90 pivotal level here. Please note that these are the lowest levels seen for the pound against the kiwi dollar since early August. According to a recent business survey attractive interest rates and a safe-haven investment appeal are behind the current NZ dollar’s strength as with the Australian Dollar.

Range of the week: 1.5812 – 1.6002
Variance on £10k: 190CAD

Sterling failed the test at the psychological 1.60 level, expect this resistance to remain while the economic concerns in the UK continue.

Range of the week: 13.8613 – 14.010
Variance on £10k: 1487ZAR

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