The Euro remained under pressure against the U.S Dollar, finding support in the region of 1.31.
Sterling / Euro and US Dollar exchange rates
The Pound continued to trade lower against the U.S Dollar yesterday, retreating to a low just above 1.56 and it is likely we’ll see a move towards support levels in the region of 1.5550 in this cycle. The decline in risk appetite will be the primary driver of the market and the improvement in the U.S Dollar and the Yen are testament to that.
The high-yielding currencies like the Australian Dollar and South African Rand have also weakened sharply in the past week, indicating a flight to safety for investors. UK stocks were broadly unchanged yesterday, with the FTSE 100 Index consolidating following a three-day slump. China’s exports were below initial forecasts, while the uncertainty in the Euro-zone resurfaced as finance ministers prepare to discuss a second bailout for Greece.
The Dollar also gained strength, as U.S economic data came in better than expected and boosted optimism that the Federal Reserve won’t add to quantitative easing measures this month. The Pound edged towards 1.57 by the close of trading last night, but was unable to regain significant support and fell away during the Asian trading session.
The liquidity conditions exaggerated the potential moves and there was significant stop-loss selling ahead of the U.S open, which pushed the Pound back towards a six week low at 1.56. The Pound was also on the defensive versus the Euro, trading under 1.19 at one stage and a further move lower to test near-term support in the region of 1.1760 seems likely.
There was a distinct lack of UK economic indicators released yesterday but the latest RICS house price survey recorded a figure of -13 from -16 previously, reinforcing stagnation within the sector. However, the house price index has risen to the highest level in 19-months, it’s reading below zero indicates that more surveyors are reports price declines than gains last month.
The Australian and New Zealand Dollars bounced back against the majors overnight, rising for the first time in three days, as Asian stocks rallied and boosted demand for the higher-yielding currencies. The Kiwi was up against all of the 26 most actively traded currencies, as reports emerged that food and house prices increased beyond initial estimates in February.
The Aussie Dollar was hampered to a degree by reports that home loans within the country fell by more-than-expected and business confidence plunged to a five month low. However, stock market sentiment will continue to influence market movement more than anything else at this time and the high-yielding currencies may be on the march again if European stocks follow the same pattern as Asia.
Euro / US Dollar
The Euro remained under pressure against the U.S Dollar, finding support in the region of 1.31, as the mood of optimism over the U.S economic outlook continued following the non-farm payrolls data on Friday last week. There will be an element of caution ahead of the FOMC interest rate announcement this evening, but given the improved sentiment towards the economy, it’s unlikely that policy makers will loosen policy any further.
There will also be speculation that the Fed would wait to act once there is fresh evidence of a deterioration in conditions. While the economy seems to be gaining momentum, policy makers can afford the luxury of a wait-and-see approach. The U.S budget deficit amounted to $231.6 billion for January, which was the highest monthly deficit since 2008 and will remind investors of the structural vulnerabilities that are still present in the U.S economy.
In Europe, there was relief that the Greek debt situation had been resolved, for now anyway, despite an important lack of confidence in the medium-term outlook. There is also speculation that Portugal would be the next EU nation dragged towards default over the coming months. The Euro may struggle to gain momentum in the short-term, as the outlook remains increasingly uncertain.
U.K 09:30 – Trade Balance (January)
U.K 09:30 – DCLG House Prices (January)
GER 10:00 – ZEW Index (March)
U.S 12:30 – Retail Sales (February)
U.S 14:00 – Business Inventories (January)
U.S 18:15 – FOMC Interest Rate Announcement
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