The Euro found support below 1.34 against the U.S Dollar yesterday but recovered through the course of the day.
Sterling / Euro and US Dollar exchange rates
The Pound rallied towards the highest level in three weeks against the U.S Dollar yesterday, after a report from the Confederation of British Industry showed that an index of UK retail sales rose in February, raising optimism that the UK economy will avoid a technical recession this quarter. The improvement in risk appetite following the German parliamentary vote on the Greek debt deal has also helped pushed Sterling higher against the Dollar with near-term resistance in the region of 1.5850.
The Pound may also be set for a move towards 1.60 should it break through the 200-day moving average. The UK currency continued to stutter against the Euro, however, trading through 1.18 towards the weakest level in 12-weeks. UK gilts rose for a sixth day though, after Standard Poor’s downgraded Greece’s credit rating to selective default, which increased demand for the relative safety of UK debt.
The Euro rallied towards a three-month high against the Dollar, as the ECB prepare to take steps to improve liquidity at Euro-zone banks. In the UK, the latest CBI retail sales survey was significantly stronger-than-expected with a reading of -2 for February, from -22 previously and there was also a more optimistic tone for March.
A gauge of UK consumer confidence remained unchanged in a report last night but the Pound continues to gain momentum from a generally robust increase in risk appetite. The Pound rallied strongly to peak above 1.59 against the U.S Dollar, recording a fresh 3-month high for the UK currency. Sterling has gained 2.2% against the Dollar this year, as data signaled that the economy is stabilising.
To that end, the latest PMI manufacturing data on Thursday will carry added significance and a strong figure would add to speculation that the economy is recovering from the fourth quarter contraction. The latest budget deficit for the first 10 months of the fiscal year was also less than initial estimates, while a separate report showed factory orders at a six month high in February.
Euro / US Dollar
The Euro found support below 1.34 against the U.S Dollar yesterday but recovered through the course of the day, as the U.S currency came under further selling pressure, as global risk appetite improved. The Dollar also weakened before the Federal Reserve Chairman Ben Bernanke testifies in Congress, after saying last month that policy makers are keeping an open mind over the option to increase quantitative easing.
The Euro also rallied towards its strongest level against the Dollar since November, amid speculation that the ECB’s allotment of three year loans to banks today will spur investor demand for Euro-denominated assets. There may be a high degree of volatility following the repo announcement this afternoon.
The positive expectations were offset by the announcement from Ireland that the government will hold a referendum on the EU proposed fiscal compact. The holding of a referendum will inject fresh uncertainty over the medium-term outlook and potentially impact on the Euro. The U.S economic data was again mixed, as durable goods orders was much weaker than expected with a 4% decline on the month.
The Australian Dollar strengthened significantly against the majors, rising up towards a three week high against the Dollar, after a report showed that consumer spending accelerated at the quickest pace in four months. The Reserve Bank of Australia took the unexpected decision to keep interest rates unchanged this month and the robust improvement in consumer confidence will spur speculation that the RBA will leave rate on hold again next month.
U.K 09:30 – Mortgage Approvals (January)
EU 10:00 – Final HICP (January)
U.S 13:30 – Revised GDP (Q4)
U.S 14:45 – Chicago PMI (February)
U.S 19:00 – Federal Reserve Bank Publishes Beige Book
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