by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound remained on the defensive yesterday and slumped to near six week lows against the Dollar, finding support in the region of 1.56 before correcting slightly higher through the course of the day. The UK currency also lost over 1% in value against the Euro, trading down towards 1.1574, amid a lack of confidence in the UK economic outlook and reports that the Euro was oversold as a measure of stability returned to the market.
The lack of confidence in the UK economy has been compounded by recent economic reports on declining business confidence and weak retails sales leading into the Christmas period. The Pound has benefited from its position outside the Euro-zone and has gained against the Euro as a haven from the sovereign debt crisis.
However, there are concerns that capital flows may fade at current yield levels, especially given the medium term fears over the UK outlook. The Pound is also more vulnerable to swings in risk sentiment and with equity markets under intense pressure, the U.S Dollar is gaining as a lower-risk asset. The Pound also came under renewed selling pressure, after a report from Rightmove Plc showed that UK house prices declined by the most in a year.
The higher-risk currencies like the Australian Dollar and South African Rand continued to weaken yesterday on a decline in risk sentiment, a theme that is likely to continue in the near-term until a level of stability and confidence returns to the market. The flight to safety that we are seeing was further emphasized by reports that a U.S congressional committee failed to agree on a deficit reduction plan, which will probably result in another downgrade in the U.S credit rating.
The European debt crisis is still having a significant impact on the Australian Dollar and there are concerns this morning that France may be about to lose its AAA credit rating. The extra yield demanded to lend to France for 10 years was 155 basis points more than the German rate this morning and the gap has been 200 points already this month, the widest spread since 1990.
The Pound continued to decline against the Euro yesterday, falling to fresh lows in the region of 1.1550 against the Euro, amid speculation that the Bank of England minutes this morning will show policy makers are leaning towards further monetary stimulus to support the economy. BoE policy maker David Miles said this week that the economic recovery has faltered and growth is now “close to zero.”
The Pound reached another six week low against the U.S Dollar, breaking through near-term support in the region of 1.56. Tomorrow’s minutes are from the November 10th meeting where the MPC held the ceiling for quantitative easing at £275 billion, after expanding it by £75 billion in October.
The BoE said the current purchases will take another three months to complete, meaning that further stimulus measures are likely to be introduced before February and possibly as early as next month. The latest government borrowing data was marginally better-than-expected, which had little impact in restoring confidence and markets remain very uneasy over the growth outlook in the UK.
Euro / US Dollar exchange rates
The Euro slumped against the Dollar for the sixth time in eight days before data today may show that Europe’s sovereign debt crisis is having a significant impact on economic growth. The single currency also declined against the Yen ahead of reports forecast to show that manufacturing in Germany and France weakened this month.
The Dollar advanced against the vast majority of the 16 most actively traded currencies, as Asian stocks plunged again over-night, adding to the overall pessimism towards risk. The Australian Dollar declined again, after a preliminary reading of a Chinese industrial output gauge declined. The move was probably exacerbated by the level of tension in the market, as traders flock to the security of lower-yielding currencies.
In Europe, there was further opposition to Eurobonds and the concept of increased ECB bond purchasing by the German government and key members of the ECB, which maintained fears that deadlock would persist, as Spanish bond yields moved higher during the day. In the U.S, the third quarter GDP revision was whether-than-expected with a decline to 2% from the 2.5% original estimate and this had a further negative impact on risk appetite, boosting the appeal of the Dollar.
Today’s Exchange Rate Data
EU 08:58 – Flash PMI – Manufacturing (November) – Services – Composite
U.K 09:30 – BoE Monetary Policy Committee Meeting Minutes
EU 10:00 – Industrial Orders (September)
U.S 13:30 – Personal Income (October) – Consumption – Core PCE
U.S 13:30 – Durable Goods (October)
U.S 13:30 – Initial Jobless Claims (w/e 19th November)
U.S 14:55 – Michigan Sentiment (November Final)
- Pound Sterling, the Euro and US Dollar Currency News – The Pound struggled to sustain its momentum above 1.65 against the US Dollar exchange rate and dipped sharply through the course of the week to lows close to 1.6350
- Daily Foreign Exchange Rate Forecast – The Pound remained on the defensive against the U.S Dollar yesterday and re-visited support levels close to $1.53
- Pound Euro US Dollar Foreign Currency Forecast – The Pound slumped against the majors yesterday
- Pound Euro US Dollar Foreign Currency Forecast – The Pound slumped to a fresh six-month low against the Euro yesterday
- 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