Sterling rose against a struggling Euro in light trade on Monday as the single currency was hampered by debt worries. Though the Euro is weaker across the board, gains for the pound are limited due to the exposure the UK itself has to the Eurozone. Holiday season does appear to be settling however in with light volumes going through, making for thin liquidity. Furthermore, many investors are certainly waiting on the sidelines until the New Year, when the Euro will undoubtedly remain vulnerable as the market awaits more aggressive solutions from European leaders to address debt concerns. A jump in the cost of insuring French debt to a new record yesterday suggests the country’s top rating may be under threat, forcing the Euro to a two week low against the Dollar.
The lack of US economic data yesterday also contributed to a lack of volatility across financial markets generally. Milestones were reached but none of them involved the US Dollar – the Euro fell to a record low against the Swiss Franc while the Aussie Dollar climbed to a record high against the euro and a decade high against the Kiwi Dollar. The US economic calendar remains devoid of any major reports today, therefore things should remain quiet. Thin trading conditions generally create one of two opposite outcomes – breakout or range. The lack of buyers and sellers can create a situation where it doesn’t take much to trigger a sharp movement in the currency. Equally however, the lack of buyers and sellers can lead to range trading if nobody is motivated to take positions. This week it appears the latter is taking shape.
Despite climbing against the Euro, the Pound remained weak against the Dollar yesterday. The current crippling snowstorms and austerity concerns for next year have and will continue to take a toll on confidence. The last time there was a snowstorm this bad was in February 2009. Consumer spending contracted 2.3% that month, and if retailers suffer the same fate then Q4 GDP will suffer accordingly. Of course, the Christmas shopping season may prove to be more resilient in the face of such weather conditions, but the current climate is certainly capping possible gains for Sterling.
Today, the only release of real significance is the latest set of public sector finance figures for the UK. Otherwise, a similarly quiet day can be expected, though any quotes from the EU may be seized upon in the absence of other noteworthy news.