by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound lost some momentum against the Euro exchange rate yesterday, finding support just under the 1.19 level, while the UK currency bounced back above 1.55 against the U.S Dollar, as global risk appetite improved as concerns eased over the European sovereign debt crisis. Spain sold its maximum target at the latest debt auction, while a report in Europe showed that manufacturing and services industries contracted less this month that initial forecasts.
The Euro clawed back above 1.30 versus the U.S Dollar, after weakening to a low of 1.2946 on Wednesday, the lowest level since January 11th. The Euro is enjoying a reprieve but the implications of a systemic debt crisis coupled with the possibility of multiple credit rating downgrades for EU nations means that the recovery may be short-lived.
UK economic data again failed to have a significant market impact but retail sales fell by more than initial estimates for November, as rising unemployment and the looming threat of a recession curtailed household spending. The Pound found support in the region of 1.54 against the U.S Dollar and advanced to highs in the region of 1.5540.
There was a 0.4% decline in UK retail sales, which was marginally worse-than-expected, although it was off-set by an upward revision to October’s figure. Markets remained extremely cautious over the data and the UK economic outlook on the whole, given reports of weak consumer spending trends. There was further evidence of defensive Sterling demand, although there was also some evidence that buying might be fading.
The French ECB governing council member Noyer made a very unhelpful comment that the UK credit rating should be downgraded from the AAA status but it did not appear to have a significant market impact. It did, however, ensure that political tensions between the UK and the Euro-zone remains elevated. The FTSE 100 Index of leading shares climbed 0.6% yesterday, which helped to improve risk sentiment.
There are still widespread concerns surrounding the UK economic outlook and the looming threat of a fourth quarter contraction. The Pound will also be susceptible to further quantitative easing by the Bank of England with the current round of asset purchases set to be concluded in February. BoE chief economist Spencer Dale said this week that the economy will probably shrink for one quarter at least.
Euro / US Dollar exchange rates
The Euro exchange rate found support below 1.30 against the Dollar and edged higher through the course of the day, although the positive move may have been a product of markets consolidating after sharp Euro losses through the course of the week. There was a sense of relief that the services and manufacturing indices didn’t decline further and the Euro also gained against the Dollar on risk appetite.
The data still suggested that the Euro-zone economy is stumbling towards a recession over the coming months. Although there was no announcement on EU credit ratings by Standard Poor’s, markets remained on high alert, as French officials attempted to downplay the potential impact of any cut in the credit rating.
The ECB President Mario Draghi remained very cautious over the possibility of any additional monetary support by the central bank, but there was further speculation that interest rates would be cut and that the bank would eventually succumb to demand for further stimulus measures to be introduced if the situation deteriorates further.
Today’s Exchange Rate Data
U.S 13:30 – Consumer Price Index (November)
- Pound Sterling, the Euro and US Dollar Currency News – The Pound struggled to sustain its momentum above 1.65 against the US Dollar exchange rate and dipped sharply through the course of the week to lows close to 1.6350
- The Pound weakened 0.3% against the Euro and also lost ground versus the U.S Dollar
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro exchange rate
- Foreign Exchange Rate Forecast – The Pound initially fell against the Euro exchange rate
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound rallied above 1.14 against the Euro exchange rate