The Euro remained resilient against the majors yesterday, bouncing back against the Dollar following an earlier decline, as the improvement in risk appetite weakened demand for the U.S currency.
Sterling / Euro and US Dollar exchange rates
The Pound weakened against the Euro yesterday, trading at a low of 1.2394, while the UK currency also declined initially following the UK inflation data. The report from the Office of National Statistics showed that the pace of UK inflation slowed to the lowest level since 2009, while the data showed the first monthly drop in consumer prices since records began in 1996.
The headline consumer inflation rate declined to 2.8% for May, from 3% the previous month and the decline in inflation has reinforced expectations that the Bank of England will move towards additional quantitative easing. There is a strong possibility that the MPC could sanction further bond purchases as early as next month during the announcement on July 5th.
Therefore, the Bank of England minutes this morning will be watched very closely and if more than two policy makers voted for additional QE this month, the Pound is likely to come under pressure. However, the UK currency remained firm yesterday, despite the speculation of further monetary easing, with a move back towards 1.57 versus the Dollar following an initial decline.
The Dollar is being undermined by speculation that the U.S Federal Reserve could also move towards additional stimulus measures to support the economic growth outlook in the FOMC meeting this evening. The Pound also took advantage of a broad improvement in global risk appetite, which saw traders exit the safe haven currencies.
There has been a greater mood of confidence surrounding the financial sector this week, which helped push the Pound back to highs above 1.5750 against the Dollar. The Pound weakened modestly against the Euro and any further upside move will largely depend on the result of the minutes this morning.
The Pound’s decline should the Bank of England act next month may be limited, however, as other central banks are also expected to add stimulus measures over the coming weeks. The Pound has gained 1.5% in value this year on a trade-weighted basis, the second best performer among 10-developed market currencies.
Euro / US Dollar
The Euro remained resilient against the majors yesterday, bouncing back against the Dollar following an earlier decline, as the improvement in risk appetite weakened demand for the U.S currency. There were reports that the full audit of Spanish banks would not be completed until September, which means the uncertainty and threat of default will continue to stalk the Euro, making very unlikely the single currency will be able to sustain any momentum.
There is also concerns that the losses at Spanish banks would be even larger-than-expected. Negotiations continue in Greece to form a coalition government with a deal expected today. In terms of economic data, the German ZEW index for investor confidence fell sharply for June and was worse than initial expectations with the sharpest rate of decline for over five years.
In the U.S, the latest housing starts data was weaker-than-expected but the focus will clearly fall on today’s FOMC rate announcement, amid speculation that the Fed would move to announce further quantitative easing. The speculation had an important impact on risk sentiment, as the Euro pushed to highs above 1.27.
Data Released Today
U.K 09:30 – BoE Minutes of 6th / 7th June MPC Meeting
U.K 09:30 – Claimant Count (May) – ILO Unemployment (April)
U.K 09:30 – Average Earnings (3 Mths to April)
U.S 17:30 – FOMC Interest Rate Announcement
U.S 19:15 – Bernanke gives post FOMC Press Conference
- The Pound is trading slightly down from yesterday at 1.208 against the Euro exchange rate
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound weakened against the majors yesterday morning
- The Pound weakened against the U.S Dollar and the Japanese Yen yesterday
- The Euro strengthened against Sterling during trading yesterday
- The Pound weakened marginally against the Euro exchange rate