The Euro still looks overly sold and the news about a second bailout for Greece has added a bit of positive sentiment to the single currency.
Sterling / Euro and US Dollar exchange rates
The Pound remained largely unchanged against the Euro in early trading yesterday, despite reports overnight that Greece had won a second international bailout to stave off the threat of a default. The struggling Euro-zone nation has been given more time to implement further austerity measures in order to bring its debt level down to 120% of gross domestic product by 2020.
However, the move to bailout Greece for a second time has been viewed as simply papering over the cracks and there are other EU nations with similar levels of indebtedness and sky high bond yields that may also require emergency funding at some point. As a result, the Euro declined against the Dollar, amid speculation that will require further political action to resolve the sovereign debt crisis.
The market has been waiting for a resolution to the debt crisis for months but it’s not as easy as that. It’s systemic and throwing money at the problem won’t solve it in the long-run. The Euro has enjoyed a good couple of days but it’s unlikely to last. The move towards 1.19 and a possible near-term challenge of resistance levels in the region of 1.1860 versus the Pound may be possible but you get the feeling that the next bit of bad news in the Euro-zone is just around the corner.
The Bank of England Deputy governor Charles Bean said that the agreement to bailout Greece may not be enough to end the debt crisis and reiterated that peripheral EU nations need to do more to reduce debt levels. He also added that the Euro-zone debt crisis represents the biggest downside risk to the UK economy following a contraction in growth during the fourth quarter.
The Monetary Policy Committee voted collectively to expand bond purchases by £50 billion earlier this month to a total of £325 billion worth of quantitative easing over the past year. Policy makers responded to the slowdown in economic growth and the decline in consumer spending. Although recent data indicates that inflation is slowing and the PMI data has been better-than-expected, growth is still likely to be restrained in the first half of the year.
The Bank of England will publish the minutes of its February meeting this morning, which will clarify the voting pattern on the decision to implement further quantitative easing. A split vote would certainly be positive for the Pound because it would suggest that further bond purchases beyond the current round would be unlikely.
Elsewhere this week, a report on Friday will probably confirm that the UK economy contracted 0.2% in the fourth quarter and it remains to be seen whether the January improvement in manufacturing services industries will be enough to drag the economy out of the slump. The Pound lost a bit of ground against the U.S Dollar, falling back under 1.58, as swings in risk sentiment continue to have a major impact.
Euro / US Dollar
The U.S Dollar strengthened against the majors yesterday, amid speculation that signs of renewed growth in the U.S economy will reduce the case for more quantitative easing from the Federal Reserve this year. However, global stocks rallied again overnight, reducing demand for the Dollar as a safe haven and from a technical perspective, we could see a move towards 1.34 this week.
The Euro still looks overly sold and the news about a second bailout for Greece has added a bit of positive sentiment to the single currency. If the Euro continues to recover against the Dollar then there’s every chance the Euro will also make gains versus the Pound in the near-term. The improvement in risk sentiment may also continue today with data in the U.S expected to confirm the housing market is stabilising.
Australian Dollar
The Australian and New Zealand Dollars rallied strongly overnight, as Asian stocks reversed earlier losses and boosted demand for higher-yielding currencies. The Aussie rallied ahead of the new home sales in the U.S this afternoon, while the Australian Foreign Minister Kevin Rudd resigned, paving the way for a leadership battle with the Prime Minister Julia Gillard.
Data Released
EU 08:58 – Flash Markit PMI – Composite (February) – Manufacturing / Services
U.K 09:30 – Minutes of 8th – 9th February MPC Meeting
EU 10:00 – Industrial Orders (December)
U.S 15:00 – Existing Home Sales (January)
Related posts:
- The Pound remained largely unchanged against the Euro yesterday
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against the U.S Dollar and the Euro
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against both the U.S Dollar and the Euro yesterday
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against the Euro
- The Pound remained broadly unchanged against the Euro Exchange Rate
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