The Euro struggled to push through resistance in the region of 1.32 against the Dollar.
Pound Sterling / Euro and US Dollar exchange rates
The Pound declined against the higher-yielding currencies again, recording yet another 27-year low of 1.4560 against the Australian Dollar and this now represents the ninth consecutive week that the Pound has dropped to lowest level since 1985. The UK currency also lost ground versus the South African Rand and New Zealand Dollar, as global confidence continues to improve, while the ongoing threat of a UK recession makes the Pound less attractive to investors.
A report from the Bank of England suggested that the UK economy is likely to remain “weak” over the coming months, amid widespread speculation of a first quarter contraction, which would signal a technical recession. The Pound dropped to the lowest level in six months against the Kiwi, as UK jobless claims rose more in January than initial estimate.
The BoE actually raised its inflation forecast, which reduced expectations of further quantitative easing over the coming months. That should support the Pound and to an extent the UK currency has risen versus the Euro but that is largely due to speculation that the EU and IMF will delay the next bailout package for Greece.
The UK unemployment claimant count rose by a larger-than-expected 6,900 for January, while the jobless rate was unchanged at 8.4% as youth joblessness continued to rise. Bank of England governor Mervyn King stated that there would be a volatile and uncertain period for the UK economy, but he was more optimistic that a fresh recession would be avoided.
Nevertheless, he also stated that an increase in interest rates at this stage would trigger a recession and the bank remains committed to a policy of ultra-low interest rates. There was further evidence of improved sentiment, as the Nationwide consumer confidence index rose to 47 to February, from 38 previously. There will be speculation that the Bank of England will sanction further quantitative easing, although the latest survey evidence is liable to be critical for the Bank’s stance.
Euro / US Dollar exchange rates
The Euro struggled to push through resistance in the region of 1.32 against the Dollar and maintained a generally softer tone through the course of the day, amid volatile trading conditions. There was further rumours surrounding Greece and the lack of a bailout for the struggling nation, which helped sustain market volatility and weaken the Euro.
The Greek Finance Minister took a generally downbeat tone in his comments during the day with references to the fact that many Euro-zone nations did not want Greece to stay in the Euro-zone. The Eurogroup head Juncker stated that a deal was in reach by Monday, but there was little underlying confidence in the outcome as default speculation remained rife.
The European growth figures recorded a 0.3% decline in output for the fourth quarter, despite a stronger-than-expected reading for France, as Italian output fell sharply, maintaining concern that peripheral economies would remain trapped in recession. In the U.S, the data was mixed with a slightly firmer tone to the manufacturing data.
The Australian Dollar recorded another 27-year high against the Pound and continued to make widespread gains versus the majors, as global stocks continue to rise and increase investors’ appetite for higher-yielding currencies. Domestically, the Aussie Dollar also found support, as data showed that the government added the most workers in 14 months during the month of January and the jobless rate unexpectedly declined.
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