by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound remained in the ascendancy against the Euro yesterday, consolidating on the previous day’s surge to the highest level in 9-months, while the UK currency again struggled to make gains versus the U.S Dollar, as global risk appetite continued to weaken. A report from the UK Office of National Statistics this morning showed that UK inflation slowed for a second consecutive month in November, which indicates that the Bank of England can continue to focus on boosting growth through monetary easing.
Consumer price growth rose 4.8% year-on-year in November, compared to 5% the previous month and officials expect the pace of inflation to drop significantly towards the 2% target next year. The BoE has also expressed concern that the European debt crisis could have a dramatic impact on the UK economy and prompt another recession. The Organisation for Cooperation and Development has already said that the UK economy is shrinking and most economists anticipate a contraction during the fourth quarter.
A drop in inflation would help boost consumer spending and provide a much needed help to the economy. Earlier today, an index of UK house prices rose unexpectedly in November from the lowest level in four months, led by an increase in demand and a fundamental lack of properties on the market. However, although the data will be greeted with an element of optimism, the real driver of the market will be risk sentiment and at present, the Pound is benefiting against the Euro from its position outside the Euro-zone.
The Pound was unable to hold above 1.56 against the U.S Dollar and dipped to lows around 1.5450, although it was dominated by wider Dollar moves, as Sterling continued to challenge fresh 9-month highs against the Euro. Bank of England chief economist Spencer Dale was very cautious in tone when talking about the economic outlook and there will still be expectations of further quantitative easing by February, as inflation continues to fall.
In the short-term, there is likely to be the potential for further defensive inflows in the UK bond market, especially with persisting fears over Euro-zone credit ratings being slashed. Underlying confidence is likely to be fragile given the underlying lack of confidence surrounding UK economic data. The latest claimant count and average weekly earnings are released this morning and both report are expected to showing a further decline in labour market conditions.
Euro / US Dollar exchange rates
The Euro edged higher against the Dollar in early trading yesterday but the move was short-lived and the single currency slumped to a fresh 11-month low just above support at 1.30. There were further doubts surrounding the EU summit last week with fears that little progress had actually been made in finding a resolution to the debt crisis.
The German Chancellor Angela Merkel insisted that there would be no increase in the ESM fund and markets were concerned that there would be no new mechanisms to help support the economy or alleviate the debt burden. The Greek Finance Minister warned that the budget deficit was actually wider-than-expected for the first 11 months of 2011.
In terms of economic data, there was a marginal improvement in the ZEW business confidence index, which maintained some hopes that the German economy would prove resilient. The U.S retail sales data was weaker-than-expected with a headline increase of 0.2% for November. At the latest FOMC meeting, the Fed was slightly more optimistic over the economic outlook, while expressing inflation would settle close to the target.
Today’s Exchange Rate Data
U.K 09:30 – Claimant Count (November) – ILO Unemployment (3 Mths to October)
U.K 09:30 – Average Weekly Earnings (3Mths to October)
EU 10:00 – Industrial Production (October)
U.S 13:30 – Export/Import Prices (November)
- Pound Sterling, the Euro and US Dollar exchange rate news – The Pound remained in a tight trading range against both the Euro and the U.S Dollar
- 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
- Sterling remained on the front foot against the Euro Exchange Rate
- Foreign Currency Exchange Rate Forecast – The Euro remained under pressure against the Dollar
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound received a timely boost yesterday, rising back up through 1.13 versus the Euro exchange rate