The US Dollar and Japanese Yen pushed significantly higher overnight as equity markets witnessed a major sell off, boosting demand for the go-to safe haven currencies.
Sterling / Euro and US Dollar exchange rates
Sterling is currently holding above 1.2500 on interbank against the Euro, however has deteriorated rapidly against the US Dollar during trading this morning, reaching a low of 1.5889.
GDP data released yesterday morning, which confirmed that economic growth in Germany accelerated, had a brief impact on the rate. The Euro initially strengthened on the back of the news that the Euro-Zone had avoided a recession, however any gains were short-lived as market focus quickly reverted the political situation in Greece.
Greece is heading for a second round of elections after talks to form a coalition broke down. The situation has sent stocks across Europe lower, pushed up bond yields and raised concern the nation may leave the Euro region.
Data from the Euro-Zone this morning confirmed that European inflation slowed last month and exports dropped, further signs that the current fiscal crisis is continuing to undermine the economy and consumer demand.
During the Bank of England inflation report released this morning, Mervyn King, Governor of the Bank of England has warned that the UK would not be unscathed by the situation in the Euro-Zone.
Growth forecasts for the UK have been reduced for this year from 1.2% to 0.8%
King confirmed in a statement that the storm brewing within the Euro-Zone is still the main threat to the UK recovery:
“We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution. The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic,”
He went on to say that we’re facing a prolonged period of “sluggish” growth which will affect the U.K, however mentioned that the Bank of England has the option to respond if needed. He suggested that officials have prepared for dangers posed by Europe’s debt crisis, after the bank raised predictions for inflation this year and lowered growth forecasts
Policy makers voted to halt any further stimulus for the UK economy during last week’s Bank of England policy meeting after a number of MPC members stepped up their rhetoric on inflation, which has been above their target for more than two years. King confirmed today that the asset purchases made between October and last month will continue to stimulate the economy for some time to come – but also mentioned that there’s a case both to expand bond purchases or to hold fewer securities and that the risks to inflation in two years are “broadly, evenly balanced.”
Euro / US Dollar
The US Dollar and Japanese Yen pushed significantly higher overnight as equity markets witnessed a major sell off, boosting demand for the go-to safe haven currencies. The US Dollar broke through the $1.2700 level reaching towards 4-month highs of 1.2680.
The MSCI Asia Pacific regional benchmark equity index dropped over 2.5% as the ongoing political uncertainties in Greece spurred the country’s policy makers to call for new elections, which traders and analysts fear may produce a ruling majority for anti-austerity parties. The problem with this is the EU and IMF may renegade on its current obligations to support Greece with its current austerity leaving Greece with no option but to exit the Euro zone and possibly the EU as a whole. Stock market activity this afternoon is likely to point to further losses and further USD gains are likely as market sentiment turns negative.
- Daily Foreign Currency Exchange Rate News – Sterling seems to be holding above interbank support
- Sterling Euro US Dollar Foreign Currency Forecast – The Pound briefly traded up towards 1.1400 on interbank against the Euro
- The Pound is holding strong against the Euro exchange rate
- Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling in a holding pattern as Dollar finds support
- The Pound weakened significantly against the majors, falling back towards 1.1805 interbank