Pound to Euro and US Dollar exchange rate: The Pound endured a mixed week against the majors

Foreign Exchange Rates Currency News - The Pound rallied through 1.50 against the Australian Dollar yesterdayThe Euro gained support against the U.S Dollar last week from Greece’s parliamentary approval for the second loan package, although it was largely considered a formality.

Sterling / Euro and US Dollar exchange rates

Following on from last week, the Pound endured a mixed week against the majors, falling through 1.1950 versus the Euro and 1.5850 against the U.S Dollar on Wednesday, after the release of the Bank of England minutes for the March announcement. The market was anticipating a unanimous vote to keep interest rates and bond purchases unchanged this month but the voting pattern revealed that two policy makers broke rank and voted to implement additional stimulus measures.

Policy maker Adam Posen, who has adopted a very bearish stance in recent months, voted for a further £25 billion this month and was joined by David Miles. The rest of the nine strong committee preferred to adopt a wait-and-see approach and see how the economy would react to the recent injection of stimulus. The result of the report rocked the Pound and the UK currency slipped back towards 1.50 versus the Australian Dollar, as the prospect of further QE by May has increased.

The Pound challenged resistance levels in the region of 1.59 against the U.S Dollar, but was subjected to significant selling pressure, after a separate report showed the latest government borrowing data was much weaker-than-expected with a requirement of £12.9 billion, from a revised surplus of £10.9 billion the previous month.

The data increased a sense of unease over the medium-term outlook and also maintained pressure on the government to tackle the deficit before the UK loses its AAA credit rating. The Chancellor’s budget was broadly in line with expectations in economic terms with the OBR revising its GDP forecasts slightly higher.

The overall stance continued to show that the government had very little room for manoeuvre but with no immediate implications for the credit rating, the Pound edged higher towards the end of the week. However, Sterling came under further pressure on Thursday, after a report from the Office of National Statistics showed that UK retail sales fell by more than expected in February.

The latest BBA mortgage lending data was also much weaker-than-expected with a decline to just over 33,000 in February, from 38,000 the previous month. There will be further unease over potential lending constraints by commercial banks, which will further dampen the outlook for consumer spending, following the disappointing retail sales numbers.

Bank of England policy maker Martin Weale revealed that he was more optimistic about the UK economic outlook, which maintained the impression that he would not sanction further quantitative easing at this stage. However, uncertainty over the prospect of more QE will persist, especially after the dovish tone of the MPC minutes earlier in the week.

Euro / US Dollar

The Euro gained support against the U.S Dollar last week from Greece’s parliamentary approval for the second loan package, although it was largely considered a formality. The single currency was unable to sustain its momentum and dipped back towards 1.32 on Thursday. There was speculation that the German government was putting pressure on the ECB to come up with a cohesive plan to effectively end the debt crisis.

There were also further concerns surrounding Spain and the ongoing threat of a default within the nation. The lack of confidence surrounding Spain was illustrated with an increase in Spanish and Italian bond yields, which triggered a decline in the Euro on concerns the crisis will escalate again. In the U.S, the Dollar is gaining and losing on swings in risk sentiment but in terms of economic data, the existing home sales figures showed a marginally weaker result for February

The Euro bounced back towards a high of 1.3280 against the U.S Dollar on Friday, but fears that the Spanish economy is slipping towards a sovereign debt crisis and a potential bailout will continue to undermine the single currency. Over the weekend, there was further criticism of the Spanish debt plans, which maintained a sense of unease.

Data Released Today

GER 09:00 – Ifo Index (March)

U.S 15:00 – Pending Home Sales (February)

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