The Euro found strong support on Friday as Euro-zone minister agreed to increase the EU firewall to €700 million.
Sterling / Euro and US Dollar exchange rates
Following on from last week, the Pound rallied from the lowest level in two weeks versus the Euro on Thursday, after the EC economic sentiment index showed that consumer confidence declined this month, which has boosted the appeal of UK-denominated assets as a haven to the debt crisis engulfing much of Europe. The UK currency subsequently bounced back from its first quarterly drop against the Euro since June, amid speculation that investors will continue to buy Sterling as an alternative.
The Pound continued to decline against the US Dollar, however, after the Nationwide Building Society said that UK house prices declined this month. Sterling has now weakened for three straight days against the Dollar, which has coincided with a decline in risk appetite, with stocks falling worldwide. A separate report from the Bank of England showed that UK mortgage approvals declined in February, with lenders granting fewer loans for home purchases.
The most recent economic data has pointed to further weakness in the UK economy and it will take some positive reports to push the Pound back onto the front foot. The Australian Dollar declined against all of the major currencies again last week, after the Treasurer Wayne Swan said that government spending cuts would be necessary to meet the country’s budget surplus target.
The Aussie also came under further selling pressure, trading above 1.53 against the Pound for the first time in 2012, amid concern that China’s manufacturing growth is slowing. The Canadian Dollar declined for a third day against its U.S counterpart and also lost ground versus a basket of currencies, including the Pound, amid concern that the global economy is slowing, further hampering risk appetite.
There was a solid reading for UK consumer lending, which may increase optimism that better lending conditions will result in higher retail sales numbers over the coming months. However, there was also a sharp decline in money supply, which reinforced fears surrounding bank lending. The net impact was to reinforce speculation that the Bank of England would have to resort to further quantitative easing over the coming months.
The Pound found support in the region of 1.5850 against the U.S Dollar and rallied again through the Asian trading session towards the 1.60 level, despite a weak consumer confidence reading on Friday. An index of sentiment dropped to minus 31, from minus 29 in February, as the Chancellor George Osborne pledged to maintain austerity measures in the this month’s budget.
The Pound rebounded against the Euro and tested resistance in the region of 1.20, while rising to the highest level in 20-weeks versus the U.S Dollar. The PMI data will be watched very closely this week and will provide fresh evidence of underlying economic trends. Other data of note includes housing market reports, as well as industrial production for February and the BCC manufacturing survey for the first quarter. In addition, the NIESR GDP estimate may provide an insight into the performance of the UK economy during the first quarter.
Euro / US Dollar
The Euro declined steadily through the course of the day on Thursday and a break of near-term support levels around 1.33 helped trigger further losses towards 1.3250. There were further concerns surrounding the outlook for the Euro-zone with a particular focus on Spain and Italy. The general strike in Spain went ahead, amid the uncertainty of Friday’s budget presentation, which had a significant impact on sentiment.
There were fresh concerns surrounding the Italian outlook, as yield spreads over German bunds widened. There was also a renewed deterioration in business confidence, which reinforced growth doubts and offset the impact of a larger than expected decline in German unemployment. The Dollar also gained ground following a report from the OECD, which suggested the U.S economy would continue to outperform Europe.
The U.S gross domestic product data was largely in line with expectations at 3% for the fourth quarter final reading. Initial jobless claims were higher-than-expected at 359,000 for the latest week, from a revised 364,000 previously. The Dollar was unable to sustain its advance against the Euro and traded back towards 1.3350 on Friday on a wider decline in risk sentiment.
The Euro found strong support on Friday as Euro-zone minister agreed to increase the EU firewall to €700 million for the net lending limit with a combination of the EFSF and ESM in the 12 months from July. Spain announced €27 billion in spending cuts and tax increases in order to bring the budget deficit back to the target level.
The focus this week will be on Euro-zone and Bank of England interest rate announcements on Thursday but neither are expected to make any changes to current monetary policy. Markets will be looking at the accompanying press conference with the ECB chairman Mario Draghi for any indication on what we can expect next month.
Data Released Today
U.K 00:01 – Hometrack House Prices (March)
EU 08:58 – Markit Manufacturing PMI (March)
U.K 09:30 – CIPS Manufacturing PMI (March)
EU 10:00 – Unemployment (February)
U.S 15:00 – Construction Spending (February)
U.S 15:00 – Manufacturing ISM (March)
- Foreign Currency Exchange Rate Forecast – The Pound continued to decline against the U.S Dollar
- The Pound continued to decline against the Dollar, after UK retail sales plunge four times as much as expected
- The Pound continued to decline against the majors yesterday on speculation Britain will lose its AAA credit rating
- The Pound continued to decline against the Euro and also came under renewed selling pressure versus the U.S Dollar yesterday
- The Pound continued to decline against the high-yielding currencies