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Dollar in retreat

Another myth busted

"Nothing ever happens over the Christmas break." Except when it does. The tradition was comprehensively challenged at the end of last week as the US dollar faded. It starts today an average of 1% below its position on the morning of Christmas Eve.

The dollar's decline began in the Far East on Friday morning. Save for a pause at the end of the New York session and another hesitation ahead of today's London opening, it was an orderly retreat with no sharp moves in either direction. Compared with last Tuesday morning, the dollar is one and three quarter cents - 1.4% - lower against the pound. The yen suffered almost as much, declining 1.2% against sterling.

There was nothing concrete to precipitate the dollar's fall. It looked as though the decline resulted from a combination of Sino-US trade optimism, end-of-year position management and a positive technical picture, all in the context of a seasonally thin market. Over the weekend the Chinese Commerce Ministry said it had "proactively" dealt with trade frictions, giving some weight to the market's optimism. However, at least one commentator thinks the "euphoria looks misplaced".

Relief for sterling

On Friday the pound had its best result in a fortnight, gaining ground against all the major currencies after seven days of losses. It brought almost to an end what has been a successful year for sterling; only the Canadian dollar had a better run.

Although the post-election sell-off has put a dampener on the celebrations, sterling can still justifiably claim to have had a better year than most investors had expected. In round figures it is 3% ahead of the US and antipodean dollars and the Japanese yen, and more than 5% stronger against the euro. Sterling's average gain since 2 January is 3.4%. 

There were no economic data to help either the pound or any other of the major currencies. On Christmas Eve, the Richmond Fed's manufacturing index undershot expectations with a four-point fall to -5. On Thursday, US weekly jobless claims were slightly fewer than forecast. On Friday, Japanese retail sales were disappointing while unemployment edged down to 2.2%. Swiss business confidence surprised on the upside with a jump of more than 16 points to 12.5.

Ahead of the next decade

The ecostats on the agenda for today and tomorrow are quite numerous  but tightly focused and of relatively modest importance. There is one UK statistic on the list.

This morning Spain reported quarterly growth of 0.4% for gross domestic product in Q3 and inflation doubling to 0.8% in December. BBA mortgage approvals for November come out before lunch and this afternoon brings the Chicago purchasing manager' index, the Dallas Fed's manufacturing index and US pending home sales.

Early on Tuesday, the China Federation of Logistics and Purchasing publishes the first of January's round of purchasing managers' index readings. There are two house price indices from the States as well as the Conference Board's take on US consumer confidence.

USD: In steady decline

USD: In steady decline

JPY: Following USD lower

JPY: Following USD lower

GBP: Top performer on Friday

GBP: Top performer on Friday

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