The U.S Dollar weakened against all of the 16 most actively traded currencies last week, as the Federal Reserve’s pledged to keep interest rates at a record low for longer than expected helped spur investor demand for higher-yielding currencies.
by Adam Solomon
Sterling / Euro and US Dollar exchange rates
Following on from last week, the Pound declined to a low of 1.1840 against the Euro, as the single currency made widespread gains following the latest PMI manufacturing and services data. Both indices rose more-than-expected in January, indicating a resilience in the Euro-zone economy, amidst the doom and gloom surrounding sovereign debt levels and multiple credit rating downgrades.
The Euro rose to a near four week high against the Yen and rose significantly through 1.30 versus the Dollar to a high just under 1.32. However, the Euro was unable to sustain its advance and came under further selling pressure through the course of the day on Thursday. The single currency declined to 1.2020 versus the Pound and slipped back under 1.30 against the Dollar in choppy trading conditions, which illustrates a fundamental lack of appetite for the single currency.
European stocks also slumped from the highest level in five months, as finance ministers failed to agree on a debt swap deal for Greece and called for a greater contribution from bondholders. U.S futures also declined alongside Asian stocks. The ongoing uncertainty surrounding a restructuring of Greek debt combined with the lingering threat of a default will weigh on the Euro and prevent a sustained advance until a resolution is found.
The Pound found support in the region of 1.5650 against the U.S Dollar and briefly pushed to a fresh two-week high at 1.5720, before selling off towards the close of trading on Friday. The UK currency slipped towards 1.1860 versus the Euro but recovered back towards 1.1950, as rumours spread of Greek debt restructuring deal.
A report from the Confederation of British Industry showed that a gauge of retail sales was significantly weaker-than-expected with a decline to a three-year low of -22. The data reinforced a real lack of confidence in the spending outlook even though officials said sales data has held generally firmer, which suggests that High Street sales may be under pressure.
The Pound will also be under pressure amid expectations that the Bank of England will engage in further quantitative easing, potentially as soon as February. There will also be uncertainty over defensive flows from the Euro-zone, especially if confidence in the Portuguese outlook continues to deteriorate.
The Pound is still reeling from Wednesday’s preliminary GDP figures for the fourth quarter. The headline figure was marginally weaker-than-expected with a 0.2% contraction and there will be concerns over the lack of growth in the private sector. The data has also reinforced near-term concerns surrounding the economy and the underlying debt levels.
The Bank of England’s MPC minutes from January’s meeting recorded a 9-0 vote for keeping rates and quantitative easing on hold. The minutes did, however, reveal a greater divergence in opinion surrounding the outlook for growth and inflation. There was still a lack of confidence in the economic outlook, but several members were doubtful whether there would be a sustained decline in inflation, making it difficult to secure widespread support for an extension to the bond purchasing plan.
Bank of England policy maker David Miles commented on Friday that it would be presumptuous to assume that there would be additional quantitative easing at the February policy meeting, indicating that a move to extend the plan is not a foregone conclusion. The latest UK PMI data will be watched closely this week with data due on all sectors of the economy. The January data was stronger-than-expected and another stronger release this month would lessen the immediate concerns surrounding a recession in the early part of this year.
Euro / US Dollar exchange rates
The U.S Dollar weakened against all of the 16 most actively traded currencies last week, as the Federal Reserve’s pledged to keep interest rates at a record low for longer than expected helped spur investor demand for higher-yielding currencies. The Dollar touched the lowest level in five weeks versus the Euro, after policy makers said the benchmark lending rate would stay low until at least late 2014.
There was still a high degree of uncertainty surrounding the Greek debt situation and there was also concerns about Portugal, as yields continued to rise to record levels with 10-year yields close to the 15% level. There were further rumours of pressure on the ECB to take losses on its holdings of Greek bonds, which helped to unsettle the Euro.
The Euro found support on dips to just below the 1.31 level against the Dollar and pushed higher again on Friday. The headline U.S GDP data was marginally weaker-than-expected with a fourth quarter increase of 2.8%, compared to expectations of a 3% rise. The breakdown of data also recorded a strong increase in inventories for the quarter, which increased concerns of a possible slowdown over the coming months.
Today’s Exchange Rate Data
EU – EU Leaders Summit
EU 10:00 – Economic Sentiment (January) – Industrial / Services / Construction
U.S 13:30 – Personal Income / Consumption (December) – Core PCE
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound declined against the U.S Dollar for a second day
- Pound Sterling, the Euro and US Dollar Currency News – The Pound declined to 1.6113 against the US Dollar exchange rate on Friday
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro exchange rate
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro and the Dollar exchange rates
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro and the US Dollar exchange rates