The Euro may be poised for further declines against the Dollar, after dropping below a two week trendline support at 1.3312.
Sterling / Euro and US Dollar exchange rates
The Pound continued to drive forward against the Euro and the US Dollar yesterday, reaching a 20-week higher versus the greenback for a second trading session, following data overnight, which showed an unexpected an improvement in Chinese manufacturing, which increased demand for riskier currencies and limited the demand for the Dollar and the Yen as a safe haven.
The UK currency also continues to test long-term resistance in the region of 1.20 versus the Euro, as concerns over the Spanish economic outlook continues to undermine the single currency. Despite the improvement in risk appetite, the Pound has also maintained last week’s advance versus the Australian and New Zealand Dollar, rising to a high above 1.54 versus the Aussie, despite an initial retreat towards 1.5330 following the Chinese data.
The Dollar is currently trading at its lowest level in a month against the Euro, after a report yesterday showed that German manufacturing unexpected improved. Overnight, the British Chambers of Commerce have reported that the UK economy will probably avoid a recession this year, but conceded the government must to more to increase lending an help aid the weak recovery.
Initial estimates suggest that the UK economy grew 0.3% in the first quarter, after a revised 0.3% contraction in the final quarter of 2011. The BCC forecasts full year growth of 0.6%, less than the 0.8% predicted by the government’s OBR. A report yesterday showed that UK manufacturing expanded at the fastest pace in 10 months in March and the Chancellor is under pressure to do more to help businesses get access to credit.
In last month’s budget announcement, George Osborne announced further cuts in the rate of corporation tax last month in an attempt to encourage companies to locate to Britain. The BCC said that more must be done and that UK inflation is likely to slow less quickly than the government expects this year due to the increase in oil and food prices.
Consumer price inflation eased to 3.4% in the latest figures for February but that’s still well above the Bank of England’s 2% target. There is also persistent concerns surrounding the potential threat of the European sovereign debt crisis on the UK economy and weak level of growth will keep policy makers on red alert to implement further quantitative easing measures if necessary.
The Bank of England meet again this week and are expected to keep interest rates and bond purchases unchanged this month. In terms of economic data, the construction PMI will be watched closely this morning for any signs of an improvement in industrial output last month. The Pound will continue to benefit from the recent improvement in risk appetite against the Dollar, remaining above the pivotal 1.60 level.
The Australian Dollar plunged to the lowest level in six weeks against the New Zealand Dollar yesterday and continued to lose ground versus the majority of the 16 most actively traded currencies, after the Reserve Bank of Australia signaled that policy makers are willing to cut interest rates again next month. The Central Bank left rates unchanged at 4.25% over-night, but the dovish statement that followed will weaken the Australian Dollar, as it signals further monetary easing to come. Even an improvement in Chinese services sector growth couldn’t halt the Aussie’s slide, as it remained above 1.54 versus the Pound.
Euro / US Dollar
The Dollar declined against the majority of currencies yesterday, amid signs of a recovery in the U.S economy, which reduced demand for the safe haven currencies and improved risk appetite. The Dollar is likely to remain under pressure in this environment before a report today that is expected to show a rebound in U.S factory orders this month.
The report follows an acceleration in U.S manufacturing yesterday and strong reports in the U.S are certainly helping boost the outlook for the global economy. The ISM manufacturing index climbed to 53.4 in March, from 52.4 in the previous month. The FOMC minutes will be watched closely tonight, after policy makers raised their assessment of the economy on March 13th and repeated that interest rates are likely to remain at exceptionally low levels for some time.
From a technical perspective, the Euro may be poised for further declines against the Dollar, after dropping below a two week trendline support at 1.3312. The single currency may complete a “small double top” should it breach 1.3252 and the Euro last reached that level on March 29th. A double top consists of two defined peaks with a moderate valley in between. A break of the neckline, the trough between the peaks, is often regarded as a bearish signal.
Data Released Today
U.K 09:30 – Construction PMI (March)
EU 10:00 – Revised GDP (Q4)
EU 10:00 – PPI (February)
U.S 15:00 – Factory Orders (February)
U.S 19:00 – FOMC Minutes of 13th March Meeting Published
- The Pound continued to make strong gains versus the Euro
- Sterling Euro US Dollar Foreign Currency Forecast – The pound continued its current downward trajectory
- 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 edge closer towards 1.20 versus the Euro
- The forward move for GBP AUD was triggered by the news that four large US retail banks had failed the most recent Federal Reserve stress test