Pound to Euro exchange rate: The Pound declined against the U.S Dollar yesterday


Foreign Exchange Rates Currency News - The Pound declined against the U.S Dollar yesterdayThe Euro was unable to gain momentum against the Dollar on Friday and weakened towards 1.32 through the course of the day.

Sterling / Euro and US Dollar exchange rates

The Pound declined against the U.S Dollar yesterday, while the UK currency also slumped for the first day in five versus the Yen, as global risk appetite weakened and spurred demand for the safest assets. The Pound also lost momentum versus the Euro, after the British Chambers of Commerce cut its UK growth forecast for the economy.

The group lowered its 2012 growth forecast to 0.6%, from 0.8% in December and pushed back its prediction for an interest rate increase to the end of 2013 from the first quarter. It also predicted that the Bank of England would not engage in further quantitative easing this year, beyond the current round of bond purchases.

The market will pay particular attention to any commentary centered around the prospect of further quantitative easing and slower growth may equate to further action from the BoE come May. That would tend to weaken the Pound and the decline in risk appetite has helped push the Pound lower. The Bank of England meet this week but it is unlikely that any action will be taken this month, following the increase to £325 billion in February.

A separate report yesterday showed that UK services industries declined from an 11-month high in February. A gauge of services activity of purchasing managers fell to 53.8 from 56 in January, with a reading above 50 indicating expansion in the sector. Although growth in services industries fell last month, the level of growth indicates the economy will avoid a technical recession this quarter.

Reports last week showed that UK manufacturing expanded for a second month in February, while construction output increased at the fastest pace in 11-months. Although retail sales growth was the weakest since November last month, employment rose for a third straight month and business confidence increased to the highest level in a year.

The Pound remained broadly unchanged overnight, as a report from the British Retail Consortium showed UK retail sales fell for a second month in February. Sales dropped 0.3% from a year earlier and that follows a 0.3% decline in January, the second worst for that month since the survey began in 1995. The Bank of England is hoping that slower inflation will help boost consumer spending later this year but any recovery may be curbed by rising unemployment.

The Pound gained some support later in the day, amid speculation that UK monetary policy could be tightened sooner-than-expected and the prospect of an interest rate increase has provided a degree of Sterling support. The UK currency was, however, unable to regain the 1.59 level versus the Dollar and attempted a break of near-term resistance in the region of 1.20 against the Euro.

Euro / US Dollar

The Euro weakened versus the majors yesterday before a report this morning is forecast to show the European economy contracted in the fourth quarter, adding to recent signs that the sovereign debt crisis is hampering growth. The safe haven currencies like the Yen and the U.S Dollar were the biggest gainers on the day, as risk appetite weakened.

The Dollar also gained after the Federal Reserve Bank of Dallas President Richard Fisher said that he opposes additional quantitative easing. The Australian Dollar declined significantly against the majors on the day, as the RBA left interest rates unchanged this month and said there’s still scope to cut borrowing costs further if demand weakens.

The Euro also came under selling pressure, as Greece struggles to complete a bond exchange with private investors by March 8th in order to receive a €130 billion bailout. Greece expects bondholders to accept the offer and is ready to force them to participate if necessary. The Euro may decline further against the Dollar in the near-term as the uncertainty of the debt crisis prompts investors to seek alternatives.

Data Released

U.K 00:01 – BRC Retail Sales (February)

EU 10:00 – Revised GDP (Q4)

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