By Jon Beddell
Foreign Currency Market Update – GBP / EUR Update
At the end of last week Sterling was challenging 3 month highs as Euro zone debt woes continued to weigh on the single currency. Things were looking good until Tuesday, when a combination of events condemned the Pound to its steepest one day decline in many months. Industrial production contracted 0.3% year on year compared to expected growth of 0.2%, and manufacturing growth was just 2.1% versus 2.8% expected. The June trade deficit also came in worse than expected. Add a generous pinch of rioting and Sterling’s cake was baked. We lost 1.5 cents on the day and another cent on Wednesday morning before things stabilised. The general financial turmoil has had little net impact on the Sterling/Euro exchange rate. The Euro is certainly susceptible to debt fears, and both Italy and Spain have been under the microscope in recent weeks and there is also talk of France being downgraded. Investors are looking at the US downgrade and wondering whether the UK, France and Germany can maintain AAA credit ratings. Of the three France is the first target. As for Sterling, civil unrest and poor data are preventing the currency from capitalising on the Euro’s undeniable problems.
The technical outlook is positive as long as interbank trading remains above 1.1250. We tested this level on Wednesday and recovered a little. The big question is whether we can now go higher and put Tuesday’s big fall behind us.