Sterling Weaker on Gordon Brown Comments

FYI: I am actually in London right now... and for this reason came across this article..going to try and find out more cool stuff while im here...if anyone has any special requests just drop a line in the comments box and i will be happy to see what i can dig up out here. Cheers!!!

The pound sterling fell against all the G10 currencies except CAD and JPYs. The softness is being blamed on comments from Prime Minister Gordon Brown, who released New Year’s comments. "My message today is simple: don't wreck the recovery," he said. "The recovery is still fragile, and it needs to be nurtured.". The comments from Brown suggest very little appetite to curb spending and improve the nation's financial situation. The UK deficit is expected to top 12% in the coming year and the country is in danger of losing its AAA-rating.

Intermarket Correlations Shifting and Eroding

Despite numerous calls that it's over, the risk trade appears to have re-emerged with the euro and commodity currencies rallying alongside stocks. S&P 500 futures are up 4 points and the euro is in the midst of one of its best sessions of the month. The overall direction of the market calls into question theories that the U.S. dollar could rally in an environment of rising risk appetite . Instead, the December dollar rally was likely due to repatriation and a short squeeze. A third possibility is that the intermarket correlations we have become accustomed to are simply fading away. This is a likely theme for 2010 as the normalization of markets will allow market participants to focus more closely on the fundamentals of individual markets. Instead of risk and fear, markets will look at supply and demand. This will be especially true in commodities with weather and supply disruptions to gain a larger share of the market's attention. In foreign exchange, the focus will zero in on interest rate expectations, fiscal situations and relative growth. For a pair like EUR/USD, the implications are enormous. At the moment, there is very little separating the growth outlook between the countries and interest rates. Neither central bank is expected to raise rates for most of 2010 and the consensus is widely separated on growth. Fiscally, the U.S. deficit is showing no signs of improvement while the sovereign outlook in many eurozone countries is troublesome.

German CPI Slightly High Than Expectation

After the regional results were tabulated, Germany's preliminary CPI for December was released. The month-over-month data showed a 0.7% rise compred to the 0.6% rise expected. Similarly, the year-over-year data was 0.8% compared to the 0.7% expected. Although it's a relatively small miss, the data adds some optimism to euro traders, as inflation could push forward ECB rate hikes. EUR/USD up 59 pips to 1.4438.