Smart Daily Currency Note | New Year starts with a bang

Sterling

Sterling had a positive start to the week, strengthening across the board on Monday in the run up to the New Year bank holiday, correcting the excessive drop off in sterling's value over the Christmas period. Following the announcement early on the 1st of January that a deal had been struck to stop the US tumbling over the so-called fiscal cliff, sterling jumped to a 16 month high of 1.6380 against the US dollar and rising above 142 versus the yen as risk appetite returned to the market. This risk rally saw stock markets across the globe rally including the FTSE breaking above the 6000 level for the first time since July 2011, whilst commodity backed currencies performed well in the foreign exchange markets. Since then, sterling has lost three cents against the US dollar and dropped sharply against the Japanese yen as economists start to doubt the benefits of the US fiscal cliff deal. On the data front, strong UK Manufacturing Purchasing Managers Index (PMI) data were released providing a boost for the UK following several months of decline, posting an expansionary figure of 51.4 when a contraction figure had been anticipated. On the downside, Construction PMI data released yesterday came out worse than expected.  Services PMI figures will be the main release today alongside information on the supply of money and the net lending to individuals. Call in now to see how sterling will fare as trading volumes start to pick up.

Euro

What a difference a week makes as sterling gained nearly two cents and the US dollar gained over two cents against the euro. This was despite it being relatively quiet in terms of data and news released from the Eurozone. Key points to note would be the German Chancellor saying in her New Year's speech that the debt crisis in Europe is "far from over". Further gains for the euro are restricted due to fears surrounding the debt crisis and weak euro zone economy in general, as well as dissatisfaction in the US fiscal cliff deal. Data also showed that factories in the euro zone fell deeper into recession, highlighted by poor Spanish and Italian Manufacturing PMI figures, they have been receding since August 2011. The ECB also said that private sector loans have also shown a contraction for the seventh month running in November. However on a more positive note, both German and Spanish unemployment change came out better than forecast yesterday. Today we will see the release of Spanish and Italian Services PMI data as well as German Retail Sales. Call now for the latest rates and updates.

US dollar

What a roller coaster week for sterling against the US dollar as sterling gained three cents at the start of the week and has now given back those gains by Friday morning. This highlights the importance of being up to date on what is happening in the market and being able to act quickly. The fiscal cliff continued to dominate the political and economic landscape stateside this week. Despite a deal being reached at the very last minute, it looks set to continue to loom over affairs for some time to come. Uncertainty reigned in the early half of the week, before risk appetite flooded back on the news of the deal - the dollar dropping to the lowest it has been against the pound since Summer 2011. It soon became clear, however, that the weeks of negotiations and political brinkmanship have not lead to a substantial deal at all, and the threat has simply been delayed. Obama's administration is now faced with the greater challenge of the so-called sequester of $109 billion due to kick in on March 1 in addition to re-negotiating the debt ceiling, and extending the law that keeps the government funded . As such, confidence in the long term effect of the deal dropped off and the value of the dollar, a safe haven asset in times of uncertainty, rose. Today sees the release of further unemployment data, which takes on an increased importance after last week's announcement that  monetary policy would remain loose until the labour market recovers. Get in touch with your trader today to get the most up to date rates.

Worldwide

Elsewhere, it was very much a week of two halves, as a significant play-off between risk appetite and risk aversion saw substantial fluctuations in demand between the traditionally riskier and safer currencies. It does seem impossible to keep the Japanese yen out of the headlines, and once again the currency saw a dramatic swing; falling to 2-year lows versus both the US dollar and sterling, before rebounding yesterday thanks to a return of risk-aversion across the markets. Both the Australian and New Zealand dollars enjoyed significant gains throughout the week as a result of improved economic confidence surrounding the US in the immediate aftermath of Fiscal Cliff negotiations. The major data release yesterday saw slightly better than expected PMI data, albeit coupled with reduced economic confidence. Tomorrow sees key employment data released from Canada, where the dollar has also enjoyed a strong week -almost touching a two week high versus its US counterpart and gaining over two cents against sterling. Call in now for the latest news and to get a live price.