The Pound declined against the Euro, falling back towards 1.2370
Sterling / Euro and US Dollar exchange rates
Following on from last week, the Pound declined against the Euro on Friday, falling back towards 1.2370, while the UK currency slumped towards a new low under 1.58 versus the U.S Dollar, as global risk appetite weakened on the threat of contagion in the Euro-zone. The single currency fell to a new four month low against the U.S Dollar, as Spain’s borrowing costs rose at the latest bond auction, which increased concerns that the Greek debt crisis is spreading to other Euro-zone economies.
As a result, the Euro declined against the Dollar and the Yen, as a flight to safety for investors ensued. Traders will be flocking to the U.S Dollar as a safe haven from the turmoil as global stocks and commodities markets plunge. The ECB has said it will stop lending to some Greek banks and the Chairman Mario Draghi signaled the ECB won’t compromise to keep Greece in the Euro-zone.
The Pound was unable to make any headway against the Dollar and retreated steadily through the course of the day before finding a degree of support. The scope for defensive UK support was perfectly illustrated by the latest two-year bond auction, as yields fell sharply to 0.35% as bidding interest remained strong.
The Pound was unable to challenge near-term resistance levels above 1.25 against the Euro, amid further speculation that the Bank of England could sanction quantitative easing within the next two months. MPC member Fisher did state that further bond purchases would be unlikely unless there was the threat of a deeper recession.
There was increased concern surrounding the UK economy, especially given the threats to the European outlook. Risk conditions will remain an important focus and an increase in fear pushed the Pound lower against the Dollar. The Australian and New Zealand Dollars weakened against the majors, as stocks dropped again on concern increased Euro-zone debt is escalating.
The Pound declined against the Euro for a third day on Friday, while the UK currency also traded as low as 1.5734 versus the U.S Dollar, amid escalating concern that the European debt crisis will result in the expulsion of Greece from the Euro-zone. The single currency fell to a four month low against the Dollar, as the German Finance Minister Wolfgang Schaeuble said that financial market turmoil may last another two years, adding to concern that the debt crisis is worsening.
The threat of contagion in the Euro-zone is making investors increasingly nervous and there’s a real defensive flow of funds into the U.S Dollar and the Yen. Moody’s Investors Service cut the ratings of 16 Spanish banks and Fitch Ratings downgraded Greece’s long-term credit rating. The Dollar and Yen recorded weekly gains against the majority of the 16 most actively traded currencies as risk aversion reigns supreme.
Bank of England policy maker Adam Posen, who will be leaving the bank at the end of August, stated that he may have been too optimistic over the UK outlook and premature in reversing his call for further quantitative easing. His comments increased speculation that the MPC could move towards additional bond purchases.
In this context, Wednesday’s BoE minutes will be very important for Sterling sentiment. Although UK benchmark bond yields stayed close to record lows, there was additional speculation that the UK currency would find it difficult to secure further gains solely on defensive ground, especially as underlying selling interest on valuation grounds would increase.
Euro / US Dollar
The Euro plunged to a fresh four-month low against the U.S Dollar, extending declines to a third straight week, amid concern that the sovereign debt crisis is worsening. The single currency weakened to the lowest level in three months versus the Yen, as investors flocked to the relative security of lower-yielding assets, after Fitch Ratings downgraded Greece’s long-term credit rating.
The ratings agency cited heightened risk that the struggling nation may not be able to sustain membership in the monetary union. The Euro traded at 1.2655 yesterday, the weakest level since January 17th, as the market’s concern about contagion and Spain came into focus. The Euro has weakened 1.9% against the Dollar in a week, the longest stretch of declines since January 13th.
In the U.S, the latest jobless claims data was broadly in line with expectations, unchanged from 370,000 in the latest week. In contrast, there was a much weaker reading for the Philly Fed Index, as it dropped to -5.8 from 8.5. There was also a significant deterioration in most of the major components, which raised some doubts over the U.S economic outlook.
The G8 summit helped support the Euro to a degree going into the weekend and the communiqué affirmed that there was interest in Greece staying in the Euro, but the evidence of divisions continued to fuel expectations of a Greek Euro exit. There was some speculation that market sentiment was shifting and that there could be a rally in risk appetite of Greece does in fact exit the Euro.
Data Released Today
No data released.
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