Pound Sterling / Euro Exchange Rate: The Euro exchange rate found a degree of support in the region of 1.2720 against the U.S Dollar

Foreign Exchange Rates Currency News - The Pound slipped against the U.S Dollar and the YenThe Pound may struggle to gain momentum in the build up to February’s interest rate announcement on speculation that policy makers will introduce new measures.

by Adam Solomon

Sterling / Euro and US Dollar exchange rates

The Pound declined against the Euro exchange rate yesterday, falling back towards 1.2020, after two consecutive days of gains, as reports emerged that Spain had sold Treasury bills at lower rates even after its credit rating was cut by two levels last week. Demand for Spanish bonds has been particularly solid in the past couple of weeks, which has helped curb Euro selling but sentiment remains extremely fragile.

The market is largely driven by risk appetite at present on the back of rising stock markets and this is helping push gilt yields higher. The economic data in Europe continues to disappoint on the whole, which tells us that current moves are not being driven by fundamentals but the environment of risk appetite could change dramatically at any time.

The UK currency was down 0.5% by midday against the Euro exchange rate, before staging a modest recovery this afternoon. The UK currency was actually up 0.4% versus the Dollar, despite a government report yesterday, which showed UK inflation had receded to 4.2%, compared with 4.8% in November. Slowing inflation will increase the chances of further quantitative easing from the Bank of England with the current round of asset purchases set to conclude in February.

The Pound may struggle to gain momentum in the build up to February’s interest rate announcement on speculation that policy makers will introduce new measures. Ernst Young LLP predicted earlier this week that a second recession may already be happening starting with a contraction in growth during the fourth quarter. The Pound is declining heavily against the higher-yielding currencies, falling as much as 1% versus the Australian Dollar to the lowest level since 1985.

The Pound was unable to make any headway against the Dollar yesterday and there was evidence of tough resistance in the region of 1.54. Consumer price inflation will continue to fall sharply in the short-term as 2011 tax increases come of the calculation and retail discounting continues. In a testimony to the UK Treasury Committee, BoE governor Mervyn King generally concentrated on technical issues surrounding the banking sector.

There was further speculation that further quantitative easing would be sanctioned by the Bank’s monetary policy committee last month and that has curbed the Pound’s appeal. The UK currency has declined 1.2% against nine developed nation currencies this year, making it the second worst performer behind the Euro. The Pound reached the lowest level since 1985 against the Australian Dollar and continued to lose ground versus the higher-yielding currencies as stocks continued to rise and risk appetite improved.

The Pound may come under further pressure against the majors this morning, amid the release of the latest unemployment data. Jobless claims is expected to rise by another 10,000 and this would bring the increase over the past year to roughly 150,000. The unemployment rate for the three months to the end of November is expected to remain at 8.3%.

Euro / US Dollar exchange rates

The Euro exchange rate found a degree of support in the region of 1.2720 against the U.S Dollar on Tuesday and pushed higher through the course of the day, as short-term sentiment improved. The German ZEW index for business confidence was significantly stronger-than-expected with the headline rate advancing to the highest level in six months.

There was also a further decline in Spanish bond yields in the latest auction, which helped underpin sentiment to a degree. There are still major fears surrounding the divergence within the Euro-zone with German economic gains not matched elsewhere and there were also concerns surrounding political deadlock following the French credit rating downgrade.

There were further talks between the Greek government and bond holders, as they battled to secure a debt-restructuring deal. Even if a deal can be agreed, there will still be fears over a hard Greek default and Fitch Ratings warned that Greece was insolvent and would default soon. In the U.S, the Empire State manufacturing index was stronger-than-expected with an increase in January, ahead of next week’s FOMC meeting next week.

Today’s Exchange Rate Data

U.K 09:30 – Claimant Count (December) – ILO Unemployment (November)

U.K 09:30 – Average Weekly Earnings (November)

U.S 13:30 – Producer Price Index (December)

U.S 14:00 – TICS Capital Inflows (November)

U.S 14:15 – Industrial Productionm (December)

U.S 15:00 – NAHB House Builders’ Sentiment (January)

Related posts:

  1. The Pound rallied through 1.56 against the U.S Dollar while the Euro found strong support in the region of 1.35
  2. Sterling Euro US Dollar Foreign Currency Forecast – The Pound encountered strong resistance in the region of 1.6170 against the U.S Dollar
  3. Pound Sterling to Canadian Dollar Foreign Currency Exchange Rate Forecast – Sterling Rebounds from Technical Support
  4. Daily Foreign Currency Exchange Rate News – Sterling seems to be holding above interbank support
  5. Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling in a holding pattern as Dollar finds support

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