by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound declined against the Dollar to a low of 1.5750 yesterday, while the UK also lost ground versus a basket of currencies, including the Euro, as the Bank of England’s quarterly inflation report was generally pessimistic over the outlook for UK economic growth. The BoE governor Mervyn King said that growth in the first half of 2012 will be subdued, spurring speculation that the Central Bank may add more stimulus in the form of quantitative easing.
A separate report showed that UK unemployment rose in the three months through September, while the jobless rate among young people climbed above 1 million for the first time since records began in 1992. The worsening economic outlook in the UK means the Pound will be vulnerable to a contraction in growth during the fourth quarter and the lingering threat of further quantitative easing over the coming months.
The Pound recovered modestly against the Euro towards midday, as the European Commission President Jose Barroso said that the Euro-zone debt crisis is systemic. Greece, Portugal Italy, Ireland and Spain are struggling to contain their debt, while credit default swaps in France continue to rise and there is speculation that ratings agencies will downgrade France from its AAA status.
Mervyn King also voiced particularly strong concerns surrounding the banking sector and fears surrounding the Euro-zone with the threat of a fresh credit crunch, as lending contracted further, which could easily trigger a recession. The Bank of England downgraded economic growth forecasts for 2012 and said Britain faces a “markedly weaker” outlook for growth, which could be interpreted as a signal for further quantitative easing.
The threat to UK economic growth will remain an important influence on the Pound and although the BoE stopped short of predicting a recession, if the Euro-zone debt crisis intensifies, it becomes an increasingly likely scenario. Yesterday’s inflation report was the first since the BoE extended bond purchases to £275 billion in October when it said the “deterioration in the outlook has made it more likely” that inflation will undershoot the 2% target in the medium term.
Unemployment rose by 129,000 to 2.62 million last month, the biggest increase since 2009, while the jobless rate climbed to the highest level in 15-years at 8.3%. The number of jobless benefits also rose 5,300 to 1.6 million in October. The Pound has appreciated 1.6% in the past month, making it the second best performer among 10 developed nation currencies, as the UK enjoys its safe haven status from the systemic problems in the Euro-zone. However, that will be difficult to sustain in recession conditions.
The Pound may come under further selling pressure, as speculation mounts that the Bank of England may implement additional stimulus measures as early as next month. King displayed real concern over Britain’s exposure to the sovereign debt crisis engulfing the Euro-zone, amid global condemnation that European officials have failed to tame the crisis.
U.S President Barack Obama said yesterday that the turmoil in financial markets will continue until European leaders persuade investors they have a cohesive plan to effectively end the crisis. The current round of bond purchases in the UK is due to end in early February and policy makers may extend the plan in December.
The Pound declined against the majors overnight, as a report from the Nationwide Building Society showed that UK consumer confidence fell to the lowest level on record in October, as Europe’s debt crisis and higher unemployment worsened the outlook for the economy. An index of sentiment dropped 9 points from the previous month to the lowest level since the index began in 2004.
Euro / US Dollar exchange rates
The Dollar declined against the Pound and the Euro yesterday, while the U.S currency also came under pressure versus the majority of 16 most actively traded currencies, amid speculation that the Federal Reserve will need to consider further quantitative easing because the U.S economy isn’t growing fast enough. The Federal Reserve Bank of New York President William Dudley speaks today and his comments will be watched closely.
Dudley said last month that it’s “possible that we could do another round of quantitative easing.” The U.S consumer price index was marginally weaker-than-expected with a headline 0.1% decline in prices, although there was still a 3.5% annual increase. The growth data was better-than-expected as the NAHB housing index rose to the highest level since May 2010, while there was also a bigger gain in industrial production, which supported risk appetite and weakened the Dollar.
The Dollar also traded lower from the highest level in five weeks versus the Euro, before data this afternoon is expected to show that U.S jobless claims rose last week from the lowest in seven months. The Australian Dollar rose last night, as futures markets indicated a U.S stock market gauge will rise, increasing demand for riskier assets.
However, risk appetite deteriorated again in early trading today following Fitch’s warnings over the U.S banking sector and the Euro retreated to lows around 1.3420. In Europe, Spanish yields edged higher again yesterday and there was a further widening of yield spreads between German and French bonds to record levels, as underlying stresses persisted.
Today’s Exchange Rate Data
U.K 09:30 – Retail Sales (October)
U.S 13:30 – Housing Starts (October)
U.S 13:30 – Initial Jobless Claims (w/e 12th November)
U.S 15:00 – Philly Fed Business Survey (November)
- Pound Sterling, the Euro and US Dollar exchange rate currency news – The Pound declined against the Dollar yesterday
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound declined against the U.S Dollar for a second day
- Foreign Currency Exchange Rate Forecast – The Pound declined against the Euro and the U.S Dollar
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro and the Dollar exchange rates
- Sterling to US Dollar and Euro exchange rates – The Pound declined heavily against the US Dollar exchange rate