The Euro was unable to make any fresh challenge to the 1.28 region against the Dollar and drifted weaker through the day to test support below 1.2740.
Sterling / Euro and US Dollar exchange rates
The Pound encountered strong resistance close to 1.5830 against the U.S Dollar on Monday and drifted weaker through the course of the day, but ranges were very narrow given the lack of economic data released. The UK currency also lost further ground versus the Euro, testing support in the region of 1.2360, as we build up to the Bank of England minutes on Wednesday.
The fact that the UK economy slumped into a technical recession in the first quarter, which has prompted comments from BoE policy maker Adam Posen, who conceded that he may have been premature in withdrawing his recommendation for quantitative easing. It will be interesting to gauge whether Posen has voted for more stimulus in May from the minutes due to be released on Wednesday and speculation that the MPC will move towards QE would tend to undermine Sterling.
There were very little domestic incentives with markets very cautious ahead of key events on Wednesday and today with the latest inflation data. The consumer price index is expected to show that inflation rose 0.6% in April, which indicates stubbornly high prices will continue to sap consumer confidence and weaken the overall outlook for the UK economy.
A lower-than-expected inflation reading would give the BoE greater scope to consider monetary easing and introduce further quantitative easing over the coming months. If demand conditions are sufficiently weak there is little doubt that the BoE will act to boost bond purchases anyway, but lower inflation would give the move greater credibility.
In addition, the latest government borrowing data will also be watched closely this morning, with markets looking to assess whether revenue held up at the start of the fiscal year. The Pound consolidated just above the 1.58 level against the Dollar this morning in subdued trading conditions. The market may get a bit of direction from the data released later this morning.
Euro / US Dollar
The Euro was unable to make any fresh challenge to the 1.28 region against the Dollar and drifted weaker through the day to test support below 1.2740. There was further evidence of caution over aggressive Euro selling, especially with speculative short positions at a record high, which maintained fears over a near-term rally.
The French government continued to promote Eurobonds, as the solution to the Euro-zone debt crisis, while the plans continued to meet tough resistance from the German Chancellor Angela Merkel. Tensions will continue to remain high ahead of an informal EU summit due to be held on Wednesday, as pressure for German concessions increases.
There were further concerns surrounding the Spanish economy, especially after another upward revision to 2011’s budget deficit, while sentiment for the ailing banking sector remained fragile. Fears over an impending Spanish bailout will continue to haunt the Euro, while the political uncertainty in Greece will escalate going into the June 17th elections.
Data Released Today
OECD 09:00 – OECD Economic Outlook Published
U.K 09:30 – Consumer Price Index (April) – RPI
U.K 09:30 – PS Net Borrowing (April)
U.K 09:30 – DCLG House Price Index (March)
EU 15:00 – Flash Consumer Confidence (May)
U.S 15:00 – Existing Home Sales (April)
- The Pound encountered strong resistance in the region of 1.5725
- Sterling Euro US Dollar Foreign Currency Forecast – The Pound encountered strong resistance in the region of 1.6170 against the U.S Dollar
- The Pound encounters strong resistance against the Euro and the Dollar as concerns over the UK debt position increase
- The Pound is holding strong against the Euro exchange rate
- Pound to Euro Exchange Rate Forecast – The Pound is continuing to trade close to three-and-a-half year highs against the Euro