by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound remained largely unchanged against the Euro yesterday, while the UK currency traded close to the lowest level in seven-weeks versus the U.S Dollar, as Bank of England policy maker David Miles said the European debt crisis is posing a greater risk to the outlook of the UK economy. He also conceded that a return to “normal” levels of growth may take some time and forecasts of a gradual improvement over the next two years may prove to be optimistic.
The Bank of England has recently embarked on further quantitative easing measures to bolster the economy and improve lending conditions, as government cuts, rising unemployment and subdued consumer spending slows growth. The revised estimate of UK gross domestic product in the third quarter confirmed that the economy expanded 0.5% in the three months to September but it is widely anticipated that the economy slumped into contraction territory during the fourth quarter.
The Euro remains under pressure against the U.S Dollar, amid signs that the debt crisis is starting to affect Germany, after bids at a sale of securities repayable in January 2022 fell 35% short of the €6 billion on offer. The level of uncertainty in the market was echoed by Miles comment that “it’s pretty difficult to know where we’ll be even at the end of the week, let alone where we’ll be in three to six months time.”
The Pound dropped to a fresh seven week low against the Dollar overnight, as Asian stocks slumped and spurred demand for the U.S currency as a haven. The Pound has declined for five straight days against the Dollar and is poised to record its biggest weekly decline since September. The UK currency has also lost 0.4% versus the Euro this week, the first decline in a month.
Although the revised estimate of gross domestic product in the third quarter was unchanged, the figure relied heavily on a build-up of inventories, which increased fears there would be weaker data in the fourth quarter. The latest CBI Industrial survey was also weaker-than-expected with a figure of -19, from -18 previously as export orders fell sharply.
Euro / US Dollar exchange rates
The Euro gained a degree of support yesterday from the German IFO business confidence survey, which recorded a rise to 106.6 for November, contrary to expectations of a further monthly decline. There was also some reassuring commentary, although sentiment remained very fragile, as fears over a deflationary spiral increased.
The Euro was, however, unable to gain any momentum and sold off sharply through the course of the day, as wider Euro-zone tensions quickly came into focus. Equity markets declined as underlying confidence continued to deteriorate with peripheral bond yields rising again and there was also a sharp rise in Belgian yields.
There was also increased fears surrounding the banking sector, amid speculation over a further tightening in liquidity. Portugal’s credit rating was cut again by Fitch ratings, while the IMF said it would return to Greece on December 12th to negotiate a second rescue package. There was little U.S influence yesterday given the Thanksgiving market holiday and the Euro dipped to lows in the region of 1.33 by the close of trading last night.
Today’s Exchange Rate Data
FRA – 07:45 Consumer Confidence
- The Pound remained largely unchanged against the majors yesterday after the BoE left interest rates unchanged at 5.0%
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against both the U.S Dollar and the Euro yesterday
- 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
- The Pound remained largely unchanged against the Euro following reports that UK house prices fell further than initial forecasts in August