The Pound rallied towards the highest level since November 2008 against the Euro.
Sterling / Euro and US Dollar exchange rates
The Pound rallied towards the highest level since November 2008 against the Euro on Friday, peaking at 1.2530, while the UK currency continued to trade lower versus the U.S Dollar, as swings in risk sentiment continued to support the Dollar as a safe haven. The Pound also retreated from near-term highs against the Australian and New Zealand Dollars, as concern over the UK economic outlook intensified.
The revised estimate of UK gross domestic product for the first quarter showed that the UK economy sank into a deeper recession than was first anticipated. GDP was revised to a figure of -0.3% from an original estimate of -0.2%, which further undermined confidence in the economic outlook, as construction activity was revised even weaker.
A stronger U.S Dollar following the weak Euro-zone data did more damage to Sterling than the GDP figures and it retreated to twice test lows below 1.5650. The weaker-than-expected growth data increased speculation that the Bank of England would move towards additional quantitative easing within the next two months and that will continue to undermine the Pound.
Safe haven considerations were still important as UK benchmark gilt yields dipped to fresh record lows before correcting slightly higher. There will be the potential for further defensive flows into Sterling, but here will also be fears over the serious negative impact on the UK economy if the Euro-zone deteriorates further.
In the UK this week, markets will be closely watching the data releases, such as the CBI distributive trades survey, manufacturing PMI and mortgage approvals for any signs of further weakness within the economy. The results of the data will make it clearer whether the Bank of England will implement fresh stimulus measures in the form of quantitative easing.
Euro / US Dollar
The Euro was subjected to heavy selling pressure during the course of last week with weaker-than-expected data triggering renewed downward pressure. The German manufacturing PMI index fell to a three year low of 45.0, from 46.6 previously, which contributed to an overall Euro-zone flash reading of 45.0.
Although the German services sector data held firm above the benchmark 50 level, the overall Euro reading fell to 46.5, from 46.9. The German IFO business confidence index weakened to the lowest level in six months and was unable to sustain the run of better than expected releases. The data reinforced concerns surrounding the Euro-zone economy as a whole and also increased pressure for action from the ECB.
There is rumours that the ECB will cut interest rates in the June meeting and will risk appetite remaining weak, the Euro dipped to lows close to 1.2520 before correcting strongly back to 1.26 with buying triggered in part by gains against the Swiss Franc. In the U.S, the latest jobless claims data edged marginally lower to 370,000, from 372,000 previously.
Data Released Today
U.S Memorial Day Market Holiday
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