by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound remained broadly unchanged against the Euro yesterday, but weakened against the U.S Dollar, as risk appetite deteriorated following the announcement earlier this week that Standard Poor’s has put 15 European countries on watch for a potential downgrade in their respective credit ratings. European stocks slumped, as did the FTSE 100 Index, while Asian shares also fell, increasing demand for the Dollar and the Yen as a haven.
Risk conditions will remain volatile and the Pound will be susceptible to a further slump against the Dollar if stocks continue to fall. However, the Pound may recover some ground versus the high-yielding currencies like the Australian Dollar and New Zealand Dollar as confidence deteriorates. There were reports that the Bank of England have introduced a new sterling liquidity facility to address potential stock market stresses as the European sovereign debt crisis intensifies and stumbles from one nation to another.
Multiple credit rating downgrades in Europe could potentially strengthen the Pound’s position against the Euro as an alternative safe haven. A report yesterday from the British Retail Consortium showed that UK shop price inflation slowed in November to the lowest level in a year. Retail sales rose 2% from a year earlier, down 2.1% in October.
The Bank of England governor Mervyn King said last month that inflation will slow through 2012, helping to support consumers as the debt crisis in Europe undermines the outlook for the UK economy. There is speculation that the ECB will cut interest rates in Europe on Thursday, but the BoE will probably keep bond purchases on hold this month.
Food prices gained an annual 4% in November, ahead of the Christmas period, down from, 4.2% in October, while inflation remained at 0.8%. KPMG and the Recruitment and Employment Confederation said that an index of hiring of full-time staff fell to 48.2 in November from 49.7 the previous month. King maintains that inflation will fall sharply over the next 12 months.
The Pound encountered strong resistance in the region of 1.5650 against the U.S Dollar and dipped to lows close to 1.5560 before finding a degree of support. The economic data on the whole did not have a significant impact on the market, as the Halifax Bank reported a decline in house prices of 0.9% for November, although the underlying trend was broadly stable.
The Pound has declined against the majority of the 16 most actively traded currencies overnight, falling back towards 1.16 versus the Euro and 1.51 against the Australian Dollar. A report this morning may show that UK manufacturing output contracted in November, while the National Institute for Economic and Social Research will report on GDP growth in the three months to November.
Euro / US Dollar exchange rates
The Euro was trapped within narrow trading ranges during Tuesday with a slightly firmer tone, amid speculation that European leaders will agree to boost the amount of funding available to the region’s most indebted nations at this week’s EU summit. There was a further test of support in the 1.3360 area against the Dollar and rallied higher through the course of the day.
German factory orders rose strongly for October, reversing the decline in the previous month’s data. European leaders continued to debate plans ahead of Friday’s summit meeting and there were suggestions of increased financing but there was still an element of skepticism about the plans, especially given the difficulties in leveraging the EFSF.
There was also further speculation that the ECB would cut rates on Thursday and there will be expectations that the central bank will be willing to engage in more aggressive measures to stimulate growth. Following Standard Poor’s warning over European credit ratings, there was also a warning that the AAA EFSF rating could also be at risk.
Today’s Exchange Rate Data
U.K 09:30 – Industrial Production (October) – Manufacturing Output
GER 11:00 – Industrial Production (October)
U.K 15:00 – NIESR GDP Estimate (3 Mths to November)
U.S 20:00 – Consumer Credit (October)
- The Pound remained largely unchanged against the Euro yesterday
- The Pound remained on the defensive yesterday and slumped to near six week lows against the US Dollar exchange rate
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against the Euro
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against the U.S Dollar and the Euro
- Pound Sterling, the Euro and US Dollar exchange rate news flash – The Pound remained lower against the majority of the 16 most actively traded currencies