Broker's Note: Sterling climbs against the euro; gold edges down

Sterling

Sterling hovered near two-month highs versus the euro on Thursday as the single currency struggled on fears Ireland's debt crisis may spread, but the pound hit a one-month low against a broadly firmer U.S. dollar. The euro stood at 84.60 pence little changed on the day, but not far from Wednesday's low of 84.28, a level not seen since Sept. 21. Portugal and increasingly Spain were seen as potentially following Ireland and needing help. Ireland's belt-tightening plan has also come under fire for sticking to economic growth assumptions unveiled earlier this month that are seen as overly optimistic. The technical outlook for sterling against the dollar had been weakened after the 50-day moving average gave way, coming in at 1.5887 on Thursday, together with a breaking of trendline support at 1.5885. Comments from Bank of England Governor Mervyn King, testifying to the House of Commons Treasury Select Committee along with other Monetary Policy Committee members, were seen as relatively balanced, as they reiterated the views of the November inflation report.

Gold

Gold edged down in thin trade on Thursday after encouraging US jobless claims data calmed some worries about economic growth, but concerns over tensions on the Korean peninsula could offer some support. Bullion barely reacted to news that Vietnam's central bank has granted additional quotas for domestic companies to import gold between now and the year end, but dealers noted buying on dips from consumers in Asia. North Korea warned of additional military attacks if South Korea makes "reckless military provocations again".

The United States says it believes North Korea's actions were an isolated act tied to leadership changes in Pyongyang, and many experts say the North carried out the shelling to burnish the image of the inexperienced and little-known younger Kim. The gold market in India, top consumer of the metal, is still in the midst of its busy season after the Dhanteras and Diwali festivals earlier this month as many weddings are to take place till December, spurring at least some demand for the metal that plays an important role in social functions.

Euro

The euro struggled near a two-month low as the euro zone debt crisis showed signs of spilling over from Ireland to other euro zone members even after Ireland unveiled an ambitious austerity plan. Portugal and increasingly Spain are seen as potentially in need of help while Dublin's belt-tightening plan has come under fire for sticking to economic growth assumptions, unveiled earlier this month, seen as too optimistic. Trade was thin, however, due to the U.S. Thanksgiving holiday on Thursday. Some market players said the fall in the euro as well as the Aussie reflected short-covering in the U.S. dollar before the holiday. The euro shed 0.2 percent on the day to trade at $1.3312. It pierced through major support around $1.3333 to hit a two-month low of $1.3284 on Wednesday. Next support is pegged at $1.3232, a 61.8 percent retracement of the August to November rally, a break of which could see the single currency target $1.3000.

Indian Rupee

The Indian rupee treaded water on Thursday after hitting a two-month low in the previous session, with firmer local shares underpinning sentiment. However, political tensions globally and financial scandals in India could keep the rupee under pressure in the coming weeks. Foreign equity inflows, which were a key factor for the rupee's 1.8 percent rise this year, are likely to be swayed by year-end profit-taking and developments in the euro zone. The rupee should move in a 45.65-45.85 band and volume will be light due to the U.S. Thanksgiving holiday. On Wednesday, eight top officials in financial firms were arrested in India's third biggest corruption scandal in the past few months. The federal police said the officials received bribes valued at hundreds of millions of dollars.
 

Source: Richcomm Global Services, DMCC, Dubai