by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound pushed sharply higher against the U.S Dollar yesterday with a peak around 1.57, as the U.S currency lost ground on the revival in risk appetite, which increased demand for the higher-yielding assets. The latest consumer confidence reading remained close to the record lows with a December reading of -33.
Confidence fell this month to the lowest level since the depths of the 2009 recession, as pessimism about the UK economy increased, amid continuing turmoil in the Euro-zone. The index dropped to the weakest level since February 2009 and a measure of expectations for the economy over the next year fell 8 points to minus 41, the lowest level since January 2009.
UK consumer confidence is being undermined, as European leaders struggle to find a solution to the region’s debt crisis, while unemployment rises at a faster pace and BoE policy makers warn of a contraction in growth over the coming months. The Deputy governor of the Central Bank Charles Bean said yesterday that officials will “take stock” of their current round of economic stimulus when it ends in February and are ready to increase quantitative easing measures if required.
Policy makers expanded asset purchases by £75 billion to a total of £275 billion in October and the minutes of the December policy meeting released this morning will show whether any members voted to increase stimulus measures this month. Another BoE member Ben Broadbent said in an interview published yesterday that there’s a “material chance of a technical recession.”
There was some positive news yesterday, as a report from the Confederation of British Industry showed a much stronger reading than anticipated, although retailers were very uneasy over January’s outlook. The data injected a further note of uncertainty into debate surrounding the economic outlook and there was also a high degree of uncertainty surrounding the impact of bank restructuring.
There was a further suspicion that lending levels would be damaged and ratings agency Moody’s warned that weaker economic growth, as a result of the European sovereign debt crisis, in the UK may result in a downgrade to the AAA credit rating. The government must also stick to its deficit reduction program over the coming months in order to maintain the top rating.
Euro / US Dollar exchange rates
The Euro rallied for a second consecutive day against the Dollar before the ECB announces the results of its first tranche of unlimited three-year loans, amid suggestions the facility is spurring demand for the nation’s sovereign debt crisis. The single currency rallied to a one-year high against the Dollar, after Spain’s borrowing costs plunged.
The Euro also benefited from reports that the German IFO business confidence index rose significantly in December, the second successive month that it confounded expectations of a decline. The institute was cautious over the outlook, but there was relief that deeper pessimism was avoided.
The Dollar declined against all but two of the 16 most actively traded currencies on reduced demand for the U.S currency as a refuge from the turmoil in the Euro-zone. Asian stock markets rallied on further signs that the U.S economic recovery is being sustained. The latest U.S housing data was better-than-expected with starts rising to the highest level since early 2010.
Today’s Exchange Rate Data
U.K 09:30 BoE Minutes of December 7th/8th Meeting
U.K 09:30 PS Net Borrowing (November)
EU 15:00 Flash Consumer Confidence (December)
U.S 15:00 Existing Home Sales (November)
- The Pound declined against the Euro and the Euro rallied higher against the Dollar early yesterday
- Sterling Euro US Dollar Foreign Currency Forecast – The pound gained over 0.5% against the euro yesterday on the back of higher than expected inflation data
- Daily Foreign Exchange Rate Forecast – The Pound has edged higher against the majors early yesterday
- Sterling Euro US Dollar Foreign Currency Forecast – The Pound rose sharply against the majority of the 16 most actively traded currencies
- The Pound pushed to a high above 1.5750 against the US Dollar Exchange Rate