The Euro struggled to stem the losses yesterday and found a degree of support in the region of 1.30 against the U.S Dollar.
Sterling / Euro and US Dollar exchange rates
The Pound declined from an 8 month high against the U.S Dollar, trading back under pivotal support at 1.6170, after a report showed that UK house prices fell in April. The RICS house prices balance showed that an index of prices dropped to minus 19, from -11 in March. A reading below zero means that surveyors saw more price declines than increases during the month.
The Pound also declined modestly against the Euro, even amid concern that Greece will withdraw from the currency bloc. Greek leaders will meet in Athens, after talks yesterday failed to forge a governing coalition following inconclusive weekend elections. Nevertheless, the Pound remained above 1.24 for the majority of the day, which is the highest level in almost two years, and with the political and economic uncertainties even more evident in Europe, it’s an upward trend that shows few signs of abating.
The Pound remained broadly unchanged over-night, rising to a fresh 22-month high against the Euro, despite a report from the British Retail Consortium, which showed that a gauge of retail sales declined 3.3% year-on-year in April. The data will reinforce concerns about the economic outlook, after the preliminary estimate of GDP showed a contraction during the first quarter.
There was further uncertainty surrounding monetary with a difference of policy opinion from former Bank of England MPC members with Gieve suggesting that further action could be considered, while Andrew Sentence stated that policy should be held unchanged. There was further evidence of defensive demand for the Pound as an alternative to the Euro, as UK gilts remained close to a record low.
The Pound relentless upward surge against the Euro is also spilling over into other currencies. The UK currency has breached 1.60 against the Australian Dollar for the first time this year and surged to 2.05 versus the New Zealand Dollar, as global risk appetite continues to weaken. The Aussie Dollar has fallen towards parity versus the U.S Dollar, as concern mounted that Greek leaders will be unable to form a coalition government.
The decline in risk sentiment will be the primary driver of the higher-yielding assets and the South African Rand also weakened significantly. The Kiwi is poised to record an eight day consecutive decline, which would be its longest losing streak since 2001, as Asian stocks extended a global rout. The Pound has also surged through 1.61 versus the Canadian Dollar, as commodities weaken.
Overall, the Pound is trading at 2012 highs against a basket of currencies, which is very attractive for those of you looking to sell Sterling. However, a word of caution. The UK economy is technically in a recession and the idea of further quantitative easing if the contraction proves deeper is still on the table. It would be naïve to think this rally could continue indefinitely and these rates that we haven’t seen for months, even years in some cases, may prove very attractive in the months ahead.
Euro / US Dollar
The Euro struggled to stem the losses yesterday and found a degree of support in the region of 1.30 against the U.S Dollar. The single currency soon slipped under this level and extended its longest losing streak in over 3-years, as Greek politicians struggle to form a credible government, raising the prospect of the struggling nation leaving the Euro-zone.
Following New Democracy’s failure to form a government, the radical left party has now been given three days to form an administration. Party leader Tsipras stated that the IMF-led program was null and void following the election, given that there was only 33% support for existing policies. That will only serve to add to the high degree of uncertainty, as Greece will need to stick to stringent austerity measures in order to secure an IMF led bailout.
In the U.S, the latest consumer confidence data registered a modest decline for May, although the impact in the market was limited given what’s happening in Europe. Markets were still on edge over the possibility of additional quantitative easing and this kept the U.S currency buying fairly subdued. There was a sharp drop in oil and gold prices during the day and the decline in risk appetite continues to support the Dollar as a safe haven.
Data Released Today
U.K 00:01 – BRC Retail Sales Survey (April)
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