The Euro remained under the significant 1.30 level against the U.S Dollar yesterday, as markets lacked the impetus to break out from narrow ranges.
Sterling / Euro and US Dollar exchange rates
The Pound rallied to the strongest level against the Euro since November 2008 yesterday, while the UK currency also made gains versus the majority of the 16 most actively traded currencies, after the Bank of England elected not to increase quantitative easing this month, despite the UK economy suffering a double-dip recession.
UK government bonds fell as policy makers maintained asset purchases at £325 billion, while keeping the interest rate on hold at 0.5%. There was some speculation that the Central Bank could react to the recent growth figures by increasing stimulus measures to support the economy. That still remains a possibility if the recession is deeper than first anticipated but the Pound gained some relief following the announcement.
The UK currency has weakened against the higher-yielding currencies, amid a general improvement in global risk appetite. UK stocks advanced yesterday with the benchmark FTSE 100 Index up for the first time in three days, which following an earlier rise in Asian stocks. The Australian and New Zealand Dollars both bounced back from their recent lows against the Pound but with concerns in Europe far from easing, it’s unlikely that the injection of confidence will last.
The latest UK manufacturing data recorded a rebound of 0.9% for March following a revised 1.1% decline for the previous month. The report will fuel optimism that the decline in economic growth during the first quarter will be revised higher over the coming weeks. The latest NIESR GDP growth estimate remained very subdued, however, with a reading of 0.1% for April following a revised 0.2% decline the previous month.
The data largely paled into insignificance through the day, as external factors continued to dominate. There was still evidence of defensive demand for the Pound as an alternative to the Euro, which protected Sterling from losses. The UK currency is likely to continue the upward swing against the Euro, while the political and economic uncertainties in the Euro-zone escalate.
Euro / US Dollar
The Euro remained under the significant 1.30 level against the U.S Dollar yesterday, as markets lacked the impetus to break out from narrow ranges. After failing to form a government, the SYRIZA coalition in Greece handed the baton over to Pasok who came third in the election last week. That just gives some indication over the political circus engulfing the nation and there is doubt whether any semblance of credible government can be formed.
There is still the obstacle that Greece does want to stay in the Euro, but not maintain the austerity program. ‘Have your cake and eat it’ springs to mind but the IMF led Troika will be reluctant to release financial aid to Greece if they don’t follow through on their commitment to austerity. Actions of the German government and the IMF will continue to be watched closely in the short-term.
In the U.S, the latest weekly jobless claims recorded a modest decline, which maintained a sense of relief surrounding labour market conditions. The latest U.S trade account recorded a sharp increase in the deficit to $51.8 billion, from a revised $45.4 billion previously. There is optimism that consumer spending will remain firm, but the impact of the deficit is likely to trigger a downward revision to the U.S first quarter growth estimates.
Data Released Today
U.K 09:30 – Producer Price Index (April)
EU 10:00 – European Commission Spring Forecasts
U.S 13:30 – Producer Price Index (April)
U.S 14:55 – Michigan Sentiment Survey (May Prelim)
- The Pound rallied towards the strongest level in two weeks
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound rallied towards the highest level in six weeks against the Euro
- The Pound rallied from the lowest level in two weeks versus the Euro
- The Pound rallied to the highest level in two-weeks against the Euro
- The Pound rallied towards the highest level in three weeks against the US Dollar