Disappointing retail sales data saw the pound sterling drop to fresh two month lows overnight with sales for the month of November recording the first decline in 6 months. UK Retails Sales for November fell 0.3 per cent, against expectations of 0.6 per cent growth - annually this represents a 3.1 per cent rise falling short of the 3.7 predicted. The ensuing minutes of the release saw sterling plunge over 60 pips and continued its descent to reach overnight lows of US$1.6080. Equity markets also took a hit with the FTSE losing close to 2 per cent and DAX finishing 1 per cent in the red. The contagion spread to US equity markets which helped the US dollar continue its upward trajectory. The US dollar index which measures the dollar's value relative to six major foreign currencies has risen to 76.88 representing a 1 per cent gain.
Fears of an economic meltdown in Greece kept the greenback buoyant as investors pondered the latest downgrade by ratings agency Standard & Poor's. This comes as late last month the once perceived money tree of Dubai was on the edge of defaulting with the state proposing to delay debt payments until May 2010 sending global markets into a tail spin. Recent times has seen the US Dollar become the beneficiary of a combination of fear and optimism, as investors return to the perceived safety of cash in times of adversity - and bets on sooner than expected interest rate hikes in the US also proving to be a major supporting factor. Economic feedback from the states saw new applicants for unemployment benefits rose to 480,000 claims for the week of December 12 against a previous downwardly revised 473,000. The positive news come with the US Leading Indicators which is a measure of economic stability going forward with the index rising to 0.9 per cent in November from 0.3 per cent in October. The Philadelphia Fed Survey showed a surprise jump in factory growth with the index recording a reading of 20.4 in December from 16.7 in November. The positive economic indicators failed to offset the balance of risk, with aversion the order of the day - evident in the 130 pt drop in the DOW and a retreat across key commodities which was amplified by poor liquidity coming into the holiday period.
Locally the Aussie dollar has taken a hit, with the local until sliding late yesterday. At the time of writing the Aussie is buying 88.50 US cents slipping through two big figures yesterday and continued to head south overnight. With greenback momentum looking likely to continue, coupled with low liquidity due to Christmas holidays - upside for the Aussie appears to be limited coming into year end.