Currency watch: US woes continue

At the Fed’s meeting this week the focus on was the extension of Bush-era tax cuts. It is obviously too early to tell whether it will work or not but one thing it will do is add to the US’ poor fiscal position.

Moody’s warned this week that the subsequent deterioration could lead to a downgrade in the US’s AAA credit rating. The dollar has been having a good week, especially after the strong Industrial Production data hit the highest it has seen since July.
 
They weren’t the only country to "reach for the Scotch", as it was revealed that Spain is also being reviewed by Moody’s. So the eurozone’s troubles remain and there was a meeting of EU leaders this week. German chancellor Angela Merkel had already spoken to press and ensured that ‘strict conditions’ would be attached to any bailout or aid for countries who require assistance.
 
The UK has had a week of data which has caused a hangover for the pound. It started with a higher inflation rate showing that UK price rises are here to stay.

This was followed by poor unemployment data and the news that Spanish risk could affect our banking system. This sparked concern which spread faster than lit brandy on a Christmas pudding as it seems our banks had a lot more exposure to the Portugal, Ireland, Greece and Spain problem than previously thought.

Retail sales came out better compared to November last year but are down month on month. As Christmas is coming and the goose is getting fat it is only natural we would want to keep our wallets the same for the month before Christmas.

Jeremy Cook, chief economist at World First, 17.12.2010