The Euro endured a mixed day against the U.S Dollar yesterday and retreated to lows below 1.32 last night in choppy trading conditions.
Sterling / Euro and US Dollar exchange rates
The Pound remained under pressure against the Euro yesterday, falling back towards 1.1950 through the course of the day, but the UK currency advanced strongly versus the U.S Dollar, rising up towards 1.5950 by the close of trading last night, led by an improvement in global risk appetite. The rally in global stocks reduced the appeal of the Dollar as a safe haven, but the higher-yielding currencies like the Australian Dollar gained back some ground against Sterling.
There has been reduced speculation that the Bank of England will engage in further quantitative easing this year, which has helped provide some underlying support to the Pound. Recent economic data has indicated that the economy is beginning to stabilize following the contraction in growth during the fourth quarter, with reports on manufacturing and services posting better-than-expected results.
The majority of the MPC voted to keep bond purchases on hold this month but there is dissention in the ranks with two policy makers voting to extend by a further £25 billion. There is still a possibility that the MPC could sanction further quantitative easing by May should the growth outlook turn negative, but at this stage we can be reasonably optimistic that the Pound will find a level of buying support.
Comments from Bank of England MPC members were generally dovish yesterday with David Miles warning over a weak growth outlook. It’s no coincidence that Miles was one of the two members to vote for a more aggressive increase in bond purchases but him and Adam Posen are certainly in the minority at this time with the rest of the panel cautiously optimistic that the economy will gather momentum.
The Pound has gained support against the Dollar from the improvement in global risk appetite, but the UK currency derived very little buying support from its position outside of the Euro-zone. However, there are escalating concerns surrounding the level of indebtedness within Spain and speculation is building of a possible need for a bailout should bond yields continue to rise.
The U.S Dollar has very much been a risk sensitive currency over the past year or more and has largely risen and fallen in line with global risk sentiment. Rising stocks and improved investor demand has historically weakened the Dollar for those seeking higher-yielding assets and when confidence has been lower, the U.S currency has benefited from its position as a safe haven.
However, by-and-large we are starting to see the Dollar gain on the improved outlook for the U.S economy. Recent economic reports have indicated that the economy is gathering momentum, as illustrated with the recent U.S employment report and factory output figures. Data this week will probably show that durable goods orders also increased in February, while even the latest housing figures have shown signs of improvement.
Added together, the renewed sense of optimism surrounding the outlook over the coming months makes it far less likely that the Federal Reserve will sanction further quantitative easing or increase stimulus measures. In the past, we have been in the usual situation where positive U.S data equates to Dollar weakness because it reduces demand for safe haven assets.
The Dollar is still benefiting from this status, which has been evident in recent sessions due to escalating concerns over Spain’s sovereign debt issues. In summary, good news for the U.S economy equals Dollar strength, as does bad news elsewhere. The future is certainly brighter for the U.S currency over the coming months and this may represent a good opportunity for Dollar buyers to secure the rate in the region of 1.59 versus the Pound.
Euro / US Dollar
The Euro endured a mixed day against the U.S Dollar yesterday and retreated to lows below 1.32 last night in choppy trading conditions. The German IFO business confidence index was marginally stronger-than-expected with a headline figure of 109.8 for March, from 109.7 the previous month. Nevertheless, it was the fifth consecutive monthly increase and helped propel the Euro higher in early trading.
The Euro was again undermined through the course of the day by fears surrounding Spain and Portgual, which could reignite the sovereign debt crisis and pose a very real threat the stability of the Euro-zone. There is a particular focus on Spain with a general strike due on Thursday ahead of planned budget cuts on Friday.
The single currency rallied back towards 1.3250 later in the day, following comments from the Fed Chairman Ben Bernanke. He was slightly more optimistic surrounding the growth outlook, but he also stated that the labour market situation was far from normal. He also maintained that it would not be the right time yet to withdraw monetary stimulus. The dovish stance put the U.S Dollar on the back foot, alongside the overall improvement in risk appetite.
The Canadian Dollar is currently wallowing in its longest losing streak since August last year and depreciated for three straight weeks versus the U.S Dollar. The ‘Loonie’ also largely affected by swings in risk sentiment but the recent bad run reflects the worsening economic outlook following a string of negative reports.
Retail sales and consumer prices missed initial estimates in the past week and that has reduced the prospect of a Canadian interest rate increase over the coming months. The Finance Minister Jim Flaherty is also due to present the government’s budget of March 29th and it will be watched closely by investors looking for an insight into GDP over the coming quarter.
Data Released Today
U.K 11:00 – CBI Distributive Trades Survey (March)
U.S 14:00 – Case Shiller House Prices (January)
U.S 15:00 – Consumer Confidence (March)
- The Pound remained under pressure against the US Dollar Exchange Rate
- Foreign Currency Exchange Rate Forecast – The Euro remained under pressure against the Dollar
- The Pound remained broadly unchanged against the Euro Exchange Rate
- The Pound remained largely unchanged against the Euro exchange rate
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound remained in a tight trading range against both the Euro and the U.S Dollar