Sterling maintains its strength against the Euro exchange rate

Foreign Exchange Rates Currency News - Sterling maintains its strength against the Euro exchange rateEuro / Pound Sterling Exchange Rate News

by Josh Ferry Woodard

Sterling / US Dollar and Euro exchange rates

Yesterday was a slow day for the foreign exchange rate market; it saw very little in the form of economic data, and in turn very little in the form of exchange rate changes. The Pound opened trading today in an almost identical position to that which it held yesterday against its major rivals. The Euro, US Dollar, Aussie Dollar, New Zealand Dollar, Canadian Dollar, Swiss Franc, and Japanese Yen are all trading within a 1/5 of a cent to what they were yesterday against the Pound. And the trend of no-trend looks set to repeat itself over the course of today with only minor releases that are unlikely to kick up a major buying/selling frenzy.

Germany posted a positive 3.0% Real GDP growth – but that was to be expected given their high Budget Surplus figures released earlier this week – and UK Trade Balance results were slightly poorer than expected (Non-EU Trade Balance equalled minus £5.021 billion compared to an expected minus £5.000 billion, and Goods Trade Balance equalled minus £ 8.644 billion compared to an expected minus £7.868 billion) – but neither release yielded much weight in the currency exchange market.

The Pound has maintained its 15-month highs against the Euro (the rate stands at 1.210 today) and looks set to build upon this from its contradictory status that benefits from both, risk appetite and safe haven flows. With the US Dollar overbought in recent times, some investors have chosen to place their funds into Sterling to benefit from a slightly higher interest rate and to avoid a Dollar trend reversal. Conversely Euro area businesses and investors are sending their funds to UK banks to preserve the value of their assets against a potential Eurozone meltdown. Both practices benefit the Pound.

European Central Bank President Mario Draghi’s decision to try and stimulate the economy indirectly seems to have backfired; since the ECB offered €489 billion in low interest 3-year loans on December 21st, the ECB has received record levels of bank deposits. Large banks have chosen to hoard the money in order to meet their refinancing needs over the next 3 years, rather than to stimulate economic growth through the offering of credit to consumers and small businesses as was intended.

Mario Draghi’s attempt to try and improve credit liquidity was an important step, sadly the execution was flawed; Phillipe Waecther of Natixis Assets Management in Paris stated in an interview: “It’s illusory to think that the measure will translate into credit generation.” As a result many merchants and small businesses have been forced to find credit from less ethical institutions. A report carried out by Italy’s leading retailers association Confeserecenti, announced this week that Italy’s most profitable bank and biggest business enterprise is the mafia.

Among a portfolio of theft, corruption, violence and smuggling, the Italian crime syndicate have taken to loan-sharking in recent times. Due to a euro-wide credit freeze desperate businesses have turned to the mafia for support, unfortunately this comes at a cost; many have been hit with extortionate interest rates and terminal consequences in the event of failed payments.

Reports suggesting that the mafia has an annual turnover of €130 billion (taking 7% of Italy’s GDP out of the economy) have added further stress to the future success of the Eurozone. Sterling looks set to benefit in the short-term from the Euro’s follies – as long as the single currency does not collapse altogether.

Today’s Exchange Rate Data

JP 05:00 – Japanese Leading Economic Index (November)

EU 08:00 – German Real GDP Growth (December)

UK 09:30 – UK Goods Trade Balance (November)

US 12:00 – US Mortgage Applications (December 6th)

US 19:00 – Fed’s Beige Book (January)

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Article source: http://feedproxy.google.com/~r/ForeignExchangeOutlook/~3/iehkzY864cM/

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