Market News & Insights
8 December 2014

Dollar Strength Continues

EUR/USD 1.2260
GBP/USD 1.5567
GBP/EUR 1.2694 (0.7879)
EUR/CHF 1.2025
GBP/CHF 1.5262
GBP/AUD 1.8803

We start the week looking East as data released overnight in China showed Chinese exports rose 4.7 percent in November from a year earlier, while imports dropped 6.7 percent, well below expectations and adding to concerns the world’s second-largest economy could be facing a sharper slowdown. The readings left the country with a trade surplus of $54.5 billion for the month and we await Wednesday’s year on year CPI figure for further direction.

As markets digest last week’s releases the USD continues its strong recovery against the majors as we head into the final weeks of the year. It’s been a huge reversal in fortunes considering we saw EUR/USD close to 1.40 in March and GBP/USD over 1.71 only a few months ago during the summer in June. Further adding to this recovery was Friday’s employment data where we saw a surprise jump in employment with the biggest hiring surge in almost three years putting aside any doubts about the strength of the expansion. November figures showed a rise of 321k new jobs created versus a forecast of 231k and a previous month figure of 243k, this was much more than anticipated and also included a jump in wages too. The jobless rate held at a six year low of 5.8% and earnings rose by the most since June last year. The breadth of industries hiring last month was the broadest since 1998, a sign the benefits of the expansion were rippling through the economy. The figures show the US remains a standout as the rest of the world struggles as the Bundesbank cut its economic forecast for Germany, Europe’s largest economy, through 2016. The central bank cut its projection for growth next year to 1 percent compared with a June outlook of 2 percent.

In the UK we saw economic growth rising to a stronger pace in November as the UK purchasing managers index, a survey of private sector firms rose to 57.6 in November from Octobers 55.8 figures released by Lloyds showed. The strongest growth regions were in the South East, West Midland’s and the East of England and released strong business growth, reflecting improving demand in the manufacturing and service sectors. We are light on the UK data front this week with retail sales and manufacturing figures out tomorrow and RICS housing survey out Thursday.
After Draghi adopting “a wait and see” approach taking no immediate action on QE last week, we have a raft of releases from France and Germany this week which should show further signs of the lack of growth at the core of the Eurozone. Earlier this morning we had German industrial production showing static growth and have French & German trade balance out tomorrow with French non farms & Industrial production out with French and German CPI and the all-important targeted LTRO released Thursday.