The Euro challenged resistance levels in the region of 1.3375 against the U.S Dollar.
Sterling / Euro and US Dollar exchange rates
The Pound declined towards a low of 1.1920 against the Euro last night and the UK currency continued to challenge resistance levels close to 1.60 versus the Dollar, as global risk appetite remained strong, reducing demand for the U.S currency as a safe haven. A report from the Confederation of British Industry showed that a gauge of retail sales improved last month, emphasizing the increasingly positive outlook for the economy this quarter.
Recent economic data has indicated that the UK economy will bounce back relatively strongly from the fourth quarter contraction last year, but tensions will remain high with the chances of further quantitative easing still in the balance. Bank of England policy maker David Miles said in a speech yesterday that the outlook is still uncertain and pointed to resilient inflationary pressures as a key reason why he voted to extend quantitative easing measures this month.
The Dollar bounced back from a two-day decline versus the Euro, ahead of a report that showed a modest drop in U.S house prices, undermining the prospects of further monetary stimulus from the Federal Reserve, despite Bernanke’s dovish statement on Monday night. Dollar buyers may wish to take advantage of the current rate, or at least consider the benefits of a stop order to protect against a retracement back towards 1.56 versus the Pound, as a drop in equity markets would be enough to boost demand for the U.S currency once more.
The Pound is currently trading very close to the 200-day moving average versus the US Dollar and a move higher could trigger a technical rally well above the pivotal 1.60 level. The Bank of England governor Mervyn King, who voted to keep bond purchases unchanged this month, was surprisingly cautious in a statement yesterday, saying that at this stage he did not know whether further measures would be needed.
The Pound Sterling declined against the Euro again this morning in the build up to the final GDP figures for the fourth quarter are released. The final estimate is expected to show that the economy contracted 0.2% in the final three months of 2011, which is unchanged from previous estimates and should therefore have a minimal effect on the market.
Euro / US Dollar
The Euro challenged resistance levels in the region of 1.3375 against the U.S Dollar, but the single currency was unable to sustain the advance and retreated back towards 1.3330 by the close of trading last night. There was mixed reports in the Euro-zone with a sharp decline in Portuguese bond yields through the day but there is optimism that there would be a stronger fund in place to protect weaker nations.
In the U.S, the latest consumer confidence data was marginally weaker-than-expected with a reading of 70.2 for March, from a revised 71.6 the previous month. The current expectations index increased, however, while confidence in the outlook over the coming months deteriorated. Following the dovish comments from the Fed chairman Ben Bernanke on Monday, the focus was very much on Fed rhetoric yesterday.
Federal Reserve governor Dudley remained cautious in his outlook for the U.S economy, but he also stated that there was unlikely to be any immediate action to provide fresh stimulus to the economy. The comments had a modest impact in dampening expectations of further quantitative easing, which also provided a degree of Dollar support.
Data Released Today
EU 09:00 – M3 / 3 Month Moving Average (February)
U.K 09:30 – Final GDP (Q4)
U.K 09:30 – Current Account Balance (Q4)
U.S 13:30 – Durable Goods (February)
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