The Euro struggled to stem the losses against the majors yesterday and fell to a low in the region of 1.3020 by midday on Monday.
Sterling / Euro and US Dollar exchange rates
The Pound continued its advance against the Euro exchange rate yesterday but the UK currency declined for a second day versus the U.S Dollar, as market speculation escalates over the prospect of further quantitative easing from the Bank of England this week. The UK currency continues to benefit from its position outside the Euro-zone and has been seen as somewhat of a haven from the debt crisis.
However, the preliminary fourth quarter growth figures showed the UK economy contracted in the final three months of the year, raising the prospect of additional quantitative easing from the BoE. It is not a foregone conclusion though and recent data over the past week showed surprisingly strong growth in manufacturing and services sectors, which may convince the majority of the MPC to adopt a wait and see approach before committing to more bond purchases.
The Euro exchange rate also declined heavily against the U.S Dollar, amid concern that Greece’s political leaders will fail to reach an agreement on a debt restructuring deal, which would allow them to receive a second bailout and stave off the threat of a hard default. The Euro declined against 13 out of the 16 most actively traded currencies and further losses may be likely until a resolution is found.
The Australian Dollar slumped from a six month high against the U.S Dollar and the strongest level since 1985 versus the Pound, after a government report showed that retail spending unexpectedly declined in January, raising the chances of an RBA cut on Tuesday. The Aussie Dollar has been largely resilient to speculation of a rate cut and this would be the third in as many months.
However, the RBA elected to leave interest rates on hold in today’s announcement and the Aussie Dollar subsequently surged higher against the majors, challenging resistance levels in the region 1.4650 versus the Pound. RBA governor Glenn Stevens said that sentiment in financial markets had “generally improved” since December.
The New Zealand Dollar was relatively unchanged and there was limited demand for higher-yielding assets, as the Greek Prime Minister Lucas Papademos began a second round of negotiations with international creditors. The Pound found support on dips below 1.5750 against the Dollar but struggled to rally back towards 1.58 in subdued trading conditions.
The latest UK economic data was mixed with the Halifax house price index recording a 0.6% increase for January. A separate report from the British Retail Consortium reported that retail sales declined 0.3% in the year to January, following a 2.2% increase the previous month. The debate surrounding the BoE interest rate announcement this week will continue today and market expectations of further quantitative easing have been scaled back following the recent PMI data.
Euro / US Dollar exchange rates
The Euro struggled to stem the losses against the majors yesterday and fell to a low in the region of 1.3020 by midday on Monday. Greek discussions continued to dominate proceedings, as the government attempted to reach an agreement on fresh austerity measures. Officials have already admitted that the second financing package will now probably need to be at least €145 billion.
The IMF led troika has made it abundantly clear that Greece will need to make fresh austerity measures to reach an agreement and if they fail then there will be a high risk of default. The Euro regained some ground overnight, as the market became slightly more optimistic that an agreement will be reached.
There were no major U.S economic reports released during the day, although a speech from regional president Bullard did attract attention as he repeated his concerns over zero interest rate policy and opposed talk of further quantitative easing. The Euro rallied back above 1.31 last night and tensions will remain high given the possibility of a relief rally if there is a Greek deal.
Today’s Exchange Rate Data
GER 11:00 – Industrial Production (December)
U.S 20:00 – Consumer Credit (December)
- Sterling Euro US Dollar Foreign Currency Forecast – The pound continued its current downward trajectory
- Sterling, US Dollar and Euro Exchange Rate: The Pound maintained a firm tone against the Dollar and pushed to highs above 1.20 versus the Euro
- The Pound continued to lose momentum against the Euro exchange rate
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound weakened against the majors yesterday morning
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound remained in a tight trading range against both the Euro and the U.S Dollar