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Winter guarantees many things for many people: alcohol poisoning, terrible presents, stuffing and to most companies it means year end. One of those four is already having an effect on FX markets and it’s not Granny’s sage and onion.

As companies end the year most will want to repatriate profits from overseas operations to their home balance sheet. This is a typical response and normally we some correlation between the performance of currencies and the amount of large corporate year ends they have in a given month. We see the euro strengthening, or at least staying supported, over the Christmas month I.e. Little upside for the pound.

The investing classes are not left out of this equation either. Banks, hedge funds and pension funds may scale back positions as we move into December to book profit before volatility. This could lead to the equity market weakness that we warned about in our ‘Weekend Note’ published Friday.

Friday was a fairly quiet day all in all with little data. We were correct in our belief that we would see pound continue to lose ground on a trade weighted basis as it moved back into the 1.65s against the dollar and low 1.11s against the euro.

With a couple of national holidays this week the prospects for further volatility is very much increased. The week is full of data including possible revisions to both the UK’s and US’s GDP reading while the Fed also see their most recent meeting’s minutes released.

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