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The euro recovered exactly the amount of ground it had lost during the previous week, about a cent and a quarter against the pound. Sterling set off lower last Monday afternoon and bottomed out early this Monday morning when Australia opened for business.
Economic data from Euroland were mostly uninspiring. Germany's services sector returned to growth, according to the purchasing managers' index, but elsewhere around the euro zone it was a story of slowing business. The figures which did inspire the euro were the measures of investor confidence in Germany and Euroland, both of which bounced back strongly in December.
It was really political developments which sent the euro higher. Specifically, investors were surprised and impressed by the progress achieved by EU leaders in agreeing on a way forward for banking supervision and a centralised budgeting system that will eventually supersede national budgets. It was more than they had been expecting.
Sterling advanced by more than a cent and a half against the dollar. It was not exactly a one-way street; on Thursday evening the pound had a bit of a wobble but otherwise the direction was clearly upwards.
At the root of the dollar's problems was a decision by the Federal Reserve to increase its programme of asset purchases – quantitative easing – by an extra $45bn a month and to commit to ultra-low interest rates until unemployment falls below 6.5% (it is currently 7.7%). Both aspects of the Fed announcement were dollar-negative.
The dollar was also undermined by progress in the negotiations towards the salvation of the euro. EU leaders agreed a plan that appeared to be further ahead than had been expected. Increased stability in the eurozone means less appetite for the safe-haven dollar. The US fiscal cliff is still an issue but there, too, investors anticipate a positive result, if not by 31 December then early in the New Year.
Sterling strengthened by a cent and a half against the Loonie. A good half of that move came on Friday afternoon and in early trade this Monday morning.
It was a quiet week for Canadian economic news. The "highlight" was a -3.6% annual fall in Canadian housing starts. Investors were more concerned, understandably, with the political developments in Euroland (progress towards centralised banking and budgetary supervision), Japan (an imminent change of government) and of course the United States (the still-unresolved fiscal cliff).
In the absence of anything economically concrete from Canada those distractions were enough to leave the Loonie bracketed with the Greenback for the duration. It stuck like glue to the US dollar, varying by little more than half a cent over the course of the week.
Sterling strengthened by almost a cent against the Australian dollar but it was arguably more by luck than by judgment. There was no obvious trend and the pound's entire gain materialised this Monday morning in Far East trade for no obvious reason.
The Australian economic news was of no great help to the Aussie. Business confidence and consumer confidence both deteriorated, the former falling by eight points to -9 and the latter by -4.1%. New motor vehicle sales rose by 9.7% in the year to November but were unchanged on the month.
The commodity currencies did not hang together in the way they often do. The Australian dollar kept pace, coincidentally, with the South African rand while the New Zealand dollar tracked the pound and the Canadian dollar marked time with the US dollar. The divergence probably had more to do with investors' year-end adjustments than with any fundamental differences between them.
There was little to choose between the NZ dollar and the pound. Sterling edged lower from Monday to Friday but recovered in early Far East trade this Monday. The kiwi made a net gain of 30 ticks, a third of a cent, an insignificant change in the great scheme of things.
New Zealand economic data were as scarce as investor’s interest in the Kiwi. The REINZ house price index went up by 1.4% in November, having risen by 1.5% the previous month. The median property price was $383,250, an increase of 0.9% over the price in November 2011. Consumer confidence improved noticeably in the fourth quarter rising from 102.5 to 111.1.
The commodity currencies did not hang together in the way they often do. The Australian dollar kept pace, coincidentally, with the South African rand while the New Zealand dollar tracked the pound and the Canadian dollar marked time with the US dollar. The divergence probably had more to do with investors' year-end adjustments than with any fundamental differences between them.
This article was provided by foreign exchange and send money online specialists moneycorp, the UK’s leading independent foreign currency exchange brokers.
