Pound Gains in Thin Year End Trading
The pound gained on the dollar and reached a ten day high of $1.6154 in thin year end trading. Year end position adjustments led to a broad dollar sell off benefiting the pound. Sterling declined against the euro which has been the chief beneficiary of the widespread dollar sell off. The exaggerated price movements were blamed on thin trading in currency markets. Geoffrey Yu of UBS stated, “This is just year-end trades. Trade is so thin it only takes a few orders to go through to cause a big movement.” The pound gained 0.4% vs. the dollar trading at $1.6131 and against the euro the pound last traded at 89.27 pence, a gain of 0.1%.
UK Banks to Make More Credit Available
Investors received encouragement from a Bank of England quarterly survey that showed that British financial institutions intend to make credit more easily available to households and businesses during the first quarter of 2010. Pound sentiment remains broadly negative due to concerns about massive UK deficits and an underperforming UK economy. Low Bank of England rates have also pressured the currency. Neil Mellor of Bank of New York Mellon said, “Fiscal concerns are one reason people are starting to get worried about sterling, and if you believe UK interest rates are going nowhere for some time it doesn’t look good for the pound.”
Analysts Say Year End Moves Have Little Meaning
Many currency analysts said that today’s movements had little meaning due to thin trading and there is disagreement whether the dollar’s recent rally is sustainable. The dollar has rallied on recent improved US economic data and speculation that the Fed will raise rates and withdraw stimulus measures. Lee Hardman of Bank of Tokyo-Mitsubishi UFJ stated, “We could some a partial retracement of December’s sharp dollar rally early in 2010, but ultimately further improved U.S. economic data will fuel Fed tightening expectations and support the dollar.” Most markets will be closed over the weekend and Japanese markets will reopen January 4th.
