The Pound declined against the Euro and the Dollar yesterday following an increase in risk aversion. The highlight this week is this morning’s final reading of third quarter GDP and the minutes to the Bank of England’s December policy meeting on Wednesday. The GDP is expected to be revised upward to minus 0.1% from the previous quarter’s reading of minus 0.3%. Interest rates are expected to remain at low levels in 2010. The pound is expected to remain under pressure ahead of next year’s election as the country is running a large fiscal deficit. Standard & Poor’s warned that it will downgrade the UK’s AAA credit rating if debt is not reduced.
The Dollar made gains against the Euro and the Pound on Monday as thin trading, analyst upgrades and merger activity boosted Dollar sentiment. Also to note yesterday Chicago Fed President Evans revealed his interpretation of the “extended period” term used in recent FOMC minutes – and it was a markedly less dovish interpretation than the market had assumed.
The Euro declined against the Dollar while making gains against the Pound as market risk aversion that sent investors fleeing into the USD. The euro was hamstringed by several factors, not the least of which was the credit rating for Greece being cut to BBB+ from A- by Standard & Poor’s. In response Greek five-year government bonds reversed their advance, pushing the yield up 4 basis points to 5.06%.
Also to note German Chancellor Angela Merkel’s government may sell fewer bonds than it expects next year as growth in Europe’s biggest economy accelerates. The Federal Finance Agency is set to publish a breakdown of bond sales as soon as today after Merkel’s Cabinet approves the 2010 draft budget in Berlin.
Data released 22nd December
UK 09.30 Current Account (Q3)
UK 09.30 Final GDP (Q3)
EU 10.00 Industrial Orders (October)
US 13.30 Final GDP (Q3)
US 15.00 Existing Home Sales (November)