The Euro exchange rate found support in the region of 1.2750 against the U.S Dollar and challenged resistance levels above the 1.28 level.
by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound declined against the Euro exchange rate yesterday to a low of 1.1974 and the UK currency continued to lose ground versus the higher-yielding currencies, as recent data suggested that the economy is heading towards another recession. The focus switched to the labour market yesterday and UK unemployment rose to the highest level in 16-years in the quarter through November, increasing concerns of a fourth quarter contraction, as the turmoil in the Euro-zone threatens to derail the economic recovery.
The jobless rate rose to 8.4%, the highest level since January 1996, from 8.1% in the three months through August. The number of people claiming jobless benefits rose for a tenth straight month to 1.6 million, the most in two years. There have been recent forecast that the UK economy contracted at the end of 2011 and the Pound has struggled to gain momentum as a result of the speculation.
The Pound remained largely unchanged against the U.S Dollar exchange rate, despite UK stocks falling for the first time in two days. The Euro made gains for the second day against the Dollar, amid reports that the IMF will seek a $500 billion expansion of its lending resources to protect the global economy. The single currency subsequently rallied against the majority of the major currencies and was further supported by optimism that Greece would resume negotiations with bond holders today and find a resolution to the deadlock.
The improvement in risk appetite reduced the appeal of the Dollar as a safe haven but sentiment will remain fragile. The Australian Dollar has risen to the highest level against the Pound in almost 30 years this week and close to its strongest level this year versus the U.S Dollar, as global risk appetite continued to improve and boost demand for riskier assets. The Aussie is also rising in anticipation of a report that is expected to show an improvement in the labour market.
The Pound found support in the region of 1.5350 against the U.S Dollar and strengthened to a high of 1.5440 through the course of the day, as the Dollar suffered wider losses. Elsewhere yesterday, the latest Nationwide consumer confidence index fell for December to record the second lowest figure ever recorded. There were also expectations that the Bank of England would move towards additional quantitative easing over the next month, which tended to undermine the Pound against the majority of the major currencies.
Euro / US Dollar exchange rates
The Euro exchange rate found support in the region of 1.2750 against the U.S Dollar and challenged resistance levels above the 1.28 level, as there was further pressure for a covering of short positions given the huge positioning bias in favour of Euro selling. There were reports that the IMF was seeking additional funds to bolster its defences against the Euro-zone debt crisis.
The IMF suggested that it would look to increase funding by an additional $600 billion, which would take the total commitment to $1 trillion. There was, however, no indication of how these funds would be sourced, especially with U.S opposition to any increase in its contribution.
Portuguese bond yields continued to rise to record highs yesterday, which increased speculation over a potential default. There was also further uncertainty surrounding the Greek debt position with no immediate debt deal, as talks with creditors resumed. In the U.S, the growth data did not have a major impact during the day, with industrial production rising 0.4% for December, after a revised 0.3% decline for the previous month.
Today’s Exchange Rate Data
EU 09:00 – Current Account (November)
EU 09:00 – ECB Monthly Bulletin Published
U.S 13:30 – Consumer Price Index (December) – Ex Food Energy
U.S 13:30 – Real Earnings (December)
U.S 13:30 – Housing Starts – Permits
U.S 13:30 – Initial Jobless Claims (w/e 14th January)
U.S 15:00 – Philly Fed Business Survey (January)
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- Sterling to US Dollar and Euro exchange rates – The Pound declined heavily against the US Dollar exchange rate
- Pound Sterling, the Euro and US Dollar Currency News – The Pound declined to 1.6113 against the US Dollar exchange rate on Friday