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The pound reached a new 10 month high against the Euro

The pound reached a new 10 month high against the euro and gained over 1% on the day’s trading against the US dollar as risk appetite picked up after a better than expected Spanish bond auction and improving US economic data.

US data showed housing starts jumped by 9.3% in November to reach its highest level in well over a year. There was also some positive data from Germany after its Ifo business-climate index for December rose. Sentiment and risk appetite was also boosted by a fall in Spain’s borrowing costs. Spain sold over €5 billion of short-term bonds in a well-received auction and bond yields in Italy also fell below the psychologically important 7%.

The credit ratings agencies remain busy with the publication of Moody’s annual credit report on the UK with the rating agency expressed its concern over the country’s triple A rating.

Moody’s analysts warned that the UK’s larger debt, weaker macroeconomic prospects and the risks from the euro zone crisis have reduced the countries’ ability to absorb further macro or fiscal shocks without ratings implications.

The GfK NOP UK consumer confidence index for the month of December has fallen to -33 points from -31 the month before, hitting its lowest level since February 2009. The market consensus had been expecting a small ‘uptick’ to -31.

According to Nick Moon, managing director of GfK NOP Social Research, “Optimism has not been lifted by pre-Christmas spending and it is hard to see grounds for a recovery in confidence in the near future.” Moon adds that, “the 8% drop in the score for the general economic situation over the next 12 months is significant and will make chilling reading for the government and British businesses.”

Attention today in the UK will focus on the release of the minutes of the most recent meeting of the Bank of England’s Monetary Policy Committee (MPC). The current Quantitative Easing (QE) program ends in February 2012 and analysts will be on the lookout for any signs that the MPC will extend the £275 billion program.

Compiled by Tony Redondo

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