The Pound declined against the U.S Dollar, falling through 1.55.
Sterling / Euro and US Dollar exchange rates
Following on from last week, the Pound declined against the U.S Dollar, falling through 1.55 on Friday, while the UK currency also traded under 1.23 versus the Euro, amid speculation that the Bank of England will engage in further stimulus measures next month through quantitative easing. Recent economic data has indicated that the UK economy is probably in a deeper recession and there is concern of the threat of contagion from the Euro-zone debt crisis.
The attention last week was focused on Wednesday’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.
The Pound was undermined on Friday by a wider-than-expected trade deficit, as the gap in goods and services increased to a seven-year high of £10.1 billion, which increased fears over the growth outlook with exports generally weak. Europe is the UK’s biggest export market and the escalating concerns in the Euro-zone means that demand is unlikely to improve.
Markets were able to take a positive attitude to Thursday’s proposals to boost lending, especially as there was a rally in UK bank shares. Nevertheless, the expectations of further quantitative easing are potentially damaging to the Pound. There was a decline in UK bond yields during the day on Friday and the Pound staged an impressive rally towards the close of trading.
The Pound surged to a high above 1.57 against the U.S Dollar and above 1.24 versus the Euro, ahead of the pivotal Greek elections over the weekend. The focus this week will inevitably fall on the Bank of England minutes on Wednesday as we’re expecting that at least two policy makers voted to increase quantitative easing measures this month.
Euro / US Dollar
The Euro weakened against the U.S Dollar and the Pound ahead of the Greek election on Sunday, but reports of a narrow win for the pro-bailout New Democracy party with a provisional 129 of the 300 seats helped boost optimism that Greece would remain in the Euro-zone. The struggling nation will now have to implement fresh austerity measures in order to warrant a bailout from the EFSF.
Syriza’s failure to win the election will dampen immediate fears surrounding a confrontations with the EU over the terms of a bailout. However, the underlying sense of uncertainty will persist given the degree of opposition to austerity. The Euro opened high this morning, reaching a one-month high against the Dollar close to 1.2750.
The Euro is likely to gain immediate support from the Greek bailout, but confidence will weaken sharply again if there are difficulties in forming a coalition. There was a further boost on Friday, as Spanish and Italian bond yields stabilized at elevated levels with fears over the economic outlook still high. There were also comments from Euro-zone officials suggesting that the deposit rate could be to zero.
Data Released Today
U.S 15:00 NAHB House Builders’ Sentiment (June)
- Exchange Rate News – The Pound declined against the Euro falling back towards 1.1470
- The Pound declined against the Euro, falling back towards 1.2370
- The Pound declines, falling over one percent against the Euro exchange rate
- The Pound declined against the Euro, falling back towards 1.2450
- Pound to Euro, US Dollar exchange rate: The Pound declined against the Dollar yesterday falling back towards 1.5420 in early trading