The Euro encountered support below 1.2550 against the Dollar yesterday and managed to edge higher through the course of the day for the third day in a row.
Sterling / Euro and US Dollar exchange rates
The Pound declined against the Dollar yesterday, falling back towards 1.5420 in early trading, while the UK currency also lost ground versus the Euro, before staging a modest recovery later in the day. There was speculation that the Bank of England will announce plans to improve liquidity among the UK’s lenders and increase the flow of credit into the economy.
The minutes from the Central Bank’s last policy meeting will be released next week and will probably show that at least two members voted to extend quantitative easing measures this month, as the economy slides deeper into a recession. The Pound declined against all of the 16 most actively traded currencies yesterday, as the Financial Times reported that the Chancellor George Osborne, alongside the Bank of England, will announce measures shortly.
The attention was focused on yesterday’s Mansion House speech where the Bank of England governor Mervyn King stated that the case for further quantitative easing was continuing to strengthen and also warned over the threat posed by the Euro-zone debt crisis. The government and the BoE also announced measures to provide cheap funds to commercial banks on the basis that this must be channeled into business lending.
The Bank will also implement its new liquidity program with details set to be announced today and the total funds available if required will be £80 billion. Defensive considerations will remain very significant in determining the direction of the Pound and there could be further safe haven flows into Sterling ahead of this weekend’s Greek vote.
Euro / US Dollar
The Euro encountered support below 1.2550 against the Dollar yesterday and managed to edge higher through the course of the day for the third day in a row. Following the Moody’s downgrade of Spain’s credit rating, there was another rise in Spanish bond yields, as benchmark 10-year yields rose to the 7% level.
This is an important level for sentiment with fears that a rise above this level will push Spain towards a wider sovereign bailout. There were reports that the government held emergency talks about the economic situation. Italian three year yields rose to 5.3% at the latest auction, which further indicates that concerns over Italy’s finances are increasing.
In the U.S, initial jobless claims were slightly higher than expected at 386,000 in the latest week, from a revised 380,000 previously, which suggested only modest improvement in the labour market. There was also a 0.3% decline in consumer price inflation for May and this will add to the uncertainty surrounding the FOMC rate announcement next week.
Data Released Today
U.K 09:30 – Trade Balance (April) – Non EU Trade
EU 10:00 – Employment (Q1)
U.S 13:30 – Empire State / NY Fed Manufacturing Index (June)
U.S 14:00 – TICS Net Capital Inflows (April)
U.S 14:15 – Industrial Production (May) – Capacity Utilisation
U.S 14:55 – Prelim Michigan Sentiment (June)
- Exchange Rate News – The Pound declined against the Euro falling back towards 1.1470
- The Pound declined against the Euro and the Euro rallied higher against the Dollar early yesterday
- The Pound declined against Dollar yesterday for the first time in three trading days
- The Pound declined against the Euro, falling back towards 1.2450
- The Pound declined against the Euro, falling back towards 1.2370