The Euro advanced to its strongest level against the Dollar in more than 10-weeks yesterday, challenging resistance levels above 1.34.
Sterling / Euro and US Dollar exchange rates
The Pound encountered strong resistance in the region of 1.5725 against the U.S Dollar and briefly tested support below 1.57 before recovering towards the close of trading last night, as the wider increase in risk appetite reduced demand for safe havens. In the UK, the latest report from the Confederation of British Industry showed that industrial orders were stronger-than-expected, rising to the highest level in six months.
Concerns surrounding the export component of the report also eased slightly, as solid demand for UK goods helped improve manufacturing output during the month. The Pound subsequently strengthened for the first time in three days against the Dollar but the UK currency continued to slide versus the Euro, falling to the lowest level in 10-weeks.
Bank of England policy maker David Miles said that he voted for £75 billion of bond purchases this month because the UK economy is in a “precarious situation”. A report this morning is expected to confirm that the revised estimate of UK economic growth in the fourth quarter contracted by 0.2%. A more extensive decline would lead to a renewed bout of Sterling weakness but there is a chance of a revision higher.
The Pound has dropped over 2% against the Euro this week, as Greece won a €130 billion bailout package, fueling optimism that policy makers will do whatever is necessary to contain the sovereign debt crisis. The UK currency also came under renewed selling pressure, as the minutes from the Bank of England’s last policy meeting showed that two members voted for more quantitative easing than was sanctioned.
There is widespread speculation that the BoE could move to extend bond purchases again over the coming months, a sentiment echoed by the Markets Director Paul Fisher who said that further QE again in May would depend on the economic outlook. It seems that the MPC are keeping an open mind when it comes to implementing further bond purchases and threat of another extension in May will weigh on the Pound. Elsewhere, there was also a strong reading for UK mortgage approvals according to the latest data, as buyers secured deals ahead of an ending of tax breaks.
Euro / US Dollar
The Euro advanced to its strongest level against the Dollar in more than 10-weeks yesterday, challenging resistance levels above 1.34, after a report in Germany showed that business confidence rose to the highest level in seven months, raising optimism even further that progress is being made in countering the sovereign debt crisis.
The European Commission issued a generally downbeat assessment of the economic outlook, forecasting a contraction in Euro-zone growth as a whole. The Dollar also came under renewed pressure, after a weekly jobless report showed that claims held at a four year low, dampening demand for the Dollar as a safe haven and boosted risk appetite.
There were further doubts surrounding the Greek debt deal and immediate concerns eased following suggestions that the IMF would be willing to provide additional funding. The Dollar did prove resilient against the commodity driven currencies last night but the Euro pushed back towards 1.3380 on short covering before consolidating by the close of trading.
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U.K 09:30 – Revised GDP (Q4)
U.S 14:55 – Final Michigan Sentiment (February)
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