DY: Euro, British Pound Pare Overnight Decline Following a Rise in Risk Appetite
The Euro pared the overnight decline against the greenback, fueled by a rise in risk appetite, and the single-currency may continue to retrace the sell-off from the previous month as the economic docket reinforces an improved outlook for future growth.
Euro, British Pound Pare Overnight Decline Following a Rise in Risk Appetite
The Euro pared the overnight decline against the greenback, fueled by a rise in risk appetite, and the single-currency may continue to retrace the sell-off from the previous month as the economic docket reinforces an improved outlook for future growth. Nevertheless, as the EUR/USD continues to test the 200-Day SMA at 1.4233 for near-term support, the pair may hold a broad range over the week as investors weigh the prospects for future policy.
At the same time, the economic docket showed manufacturing activity in Germany expanded at a faster pace in December, with the final PMI reading rising to 52.7 from 52.4 in previous month, while the gauge for the Euro-Zone increased to 51.6 from 51.2 in November. Furthermore, the Sentix investor confidence survey advanced to -3.7 in January from -5.5 in the month prior to mark the highest reading since June 2008, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. However, as the European Central Bank sees a risk for a protracted recovery, the Governing Council is likely to maintain a dovish outlook for future policy as price pressures remain subdued.
The British Pound bounced back during the overnight trade and crossed above the 20-Day SMA (1.6136) to reach a high of 1.6242, and the GBP/USD may hold a broad range ahead of the Bank of England rate decision on Thursday as the central bank is widely expected to maintain its current policy this month. Meanwhile, mortgage approvals in the U.K. rose to 60.5K in November from a revised 57.7K in the previous month, which is the highest reading since March 2008, while the manufacturing PMI rose to a two-year high of 54.1 in December from 51.8 in the previous month to top forecasts for a rise to 52.0. As policy makers see the nation emerging from the worst recession since the post-war period, the BoE may turn increasingly hawkish as they expect price pressures to intensify throughout the first-half of 2010, but the central bank is likely to hold the benchmark interest rate at 0.50% over the coming months in order to encourage a sustainable recovery.
The greenback weakened across the board, with the USD/JPY halting the five-day rally, and the greenback could face increased selling pressures going into the North American trade as the dollar remains the top funding-currency next to the Japanese yen. Nevertheless, manufacturing activity in the world’s largest economy is anticipated to expand at a faster pace in December as economists forecast the ISM index to increase to 54.1 from 53.6, while construction spending is expected to contract 0.5% in November after holding flat during the previous month, and the slew of mixed data could spark increased volatility across the major currencies as investors weigh the outlook for future growth.
