Sterling, US Dollar and Euro Exchange Rate: The Pound declined against the U.S Dollar yesterday

Foreign Exchange Rates Currency News - The Pound found support in the region of 1.5650 against the U.S DollarThe Euro remained largely on the back foot against the U.S Dollar yesterday, dipping to lows in the region of 1.3070.

by Adam Solomon

Sterling / Euro and US Dollar exchange rates

The Pound declined against the U.S Dollar yesterday, led by a decline in risk appetite, while the UK currency edged higher versus the Euro ahead of the EU summit in Brussels yesterday, where officials are putting the finishing touches to a German-led deficit control treaty. The result of the treaty should be the endorsement of the €500 billion rescue fund to be set up this year.

The Euro is weakening in anticipation of the announcement but the single currency may receive a boost once officials announce the full details of the treaty. Elsewhere, a report in the UK yesterday showed that house prices were unchanged in January and from a year earlier had fallen 1.6%. The report added to the recent pessimism over the housing market and will be the start of a number of economic reports this week that give us an indication of whether the UK economy will officially slip into a recession over the next quarter.

The Euro was also down against the U.S Dollar as of midday in London, amid concern that tentative negotiations over a Greek restructuring deal will hamper efforts to resolve the debt crisis. The Euro also weakened as Italy raised less than its maximum target at a bond sale following Fitch Ratings downgrade of the nation’s credit rating last week.

This helped to add to the overall decrease in risk appetite, which was evident in the performance of some of the higher-yielding currencies. The South African Rand and the Australian Dollar declined as stocks fell and the increased volatility in the market may see these high-yield currencies weaken even further.

The Pound gained support on dips below 1.5640 against the Dollar and pushed back to challenge resistance levels in the region of 1.5720 as the U.S currency weakened again. Data last night showed that UK consumer confidence improved in January, which will provide some support to sentiment. Although confidence will remain very fragile, amid fears over the consumer spending outlook.

The PMI data releases this week will be extremely important in determining confidence in the domestic outlook with the manufacturing survey due on Wednesday. Safe haven considerations will also remain an important focus and there will be further speculation over defensive inflows into the UK as a refuge from persistent uncertainty surrounding the Euro-zone.

Euro / US Dollar exchange rates

The Euro remained largely on the back foot against the U.S Dollar yesterday, dipping to lows in the region of 1.3070, amid reports that still no agreement had been reached between the Greek government and private sector bondholders, despite the Greek Prime Minister Lucas Papademos saying that progress had been made.

German Chancellor Angela Merkel’s stance was that Germany would not back any increase in the rescue package for Greece even if estimates of the amount required was increased. Any such deal for creditors would be regarded as an effective default by the ratings agencies. There were further concerns surrounding Portugal’s debt during the day, as yields rose to fresh record highs, as fears over a default intensified.

There was also speculation that European banks would look to increase emergency funding over the coming months. The U.S economic data did not have a major impact and the Euro recovered from losses from late in the U.S session on a general improvement in risk appetite and fresh hopes surrounding a Greek resolution.

Today’s Exchange Rate Data

U.K 00:01 – Gfk Consumer Confidence (January)

GER 08:00 – Retail Sales (December)

U.K 09:30 – Mortgage Approvals (December)

EU 10:00 – Unemployment (December)

U.S 13:30 – Employment Costs (Q4)

U.S 14:00 – Case Shiller House Prices (November)

U.S 14:45 – Chicago PMI (January)

U.S 15:00 – Consumer Confidence (January)

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