by Adam Solomon
Sterling / Euro and US Dollar exchange rates
The Pound slumped to the lowest level in a month against the U.S Dollar, while the UK currency also lost over 1% versus the Euro, after a report from Rightmove Plc showed that UK house prices declined by the most in a year. Home sellers slashed asking prices amid increasing concern that the UK economic outlook is deteriorating and will result in a contraction in growth during the fourth quarter.
The Prime Minister David Cameron conceded that Britain is “well behind” in terms of growth and reiterated concerns over the UK’s exposure to the European sovereign debt crisis. The FTSE 100 Index dropped for a sixth consecutive day, which is feeding into risk aversion and boosting the appeal of the safest assets like the U.S Dollar and Yen.
The higher-risk currencies like the Australian Dollar and South African Rand continued to weaken on 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 disappointing housing figures have brought the focus back on the weakness of the UK economy today and the Pound is losing value as a result.
The flight to safety that we are seeing was further emphasized by reports that a U.S congressional committee is likely to announce it failed to agree on a deficit reduction plan, which will probably result in another downgrade in the U.S credit rating. The Pound dropped to the lowest level since October 12 versus the Dollar at 1.5610, losing over 1% on the day.
The housing data was very poor and showed that average asking prices in Britain fell 3.1% from October and all 10 regions of the Rightmove report showed falling asking prices, the first time it has happened in over three years that they have all declined at the same time. Cameron was speaking at a CBI event in London and maintained that the government is working on a “massive” credit easing plan.
The Bank of England governor Mervyn King said last week in the quarterly inflation report that the UK economy faces a “markedly” weaker outlook and there is a persistent threat from the Euro-zone. King also said that growth is likely to be “broadly flat” in the first half of 2012 and the MPC is expected to maintain a pessimistic tone in the minutes from this month’s policy meeting.
The Pound remained on the defensive during the course of the day yesterday and dipped to 6-week lows just above 1.56 against the Dollar before correcting slightly higher with Sterling also weakening to 1.1570 versus the Euro. There is a persistent lack of confidence in the UK economic outlook following a raft of negative data on business confidence and report of weakening consumer spending in the build up to Christmas.
The Pound has enjoyed its position outside the Euro-zone and has been the beneficiary of safe haven capital flows over the past few weeks, as confidence drained from the Euro-zone. There were increased concerns that flows may decline at current yield levels, especially given the medium-term fears over the UK economic outlook.
The Pound was also generally more vulnerable when risk aversion increased and this was an important feature during Monday, as equity markets were subjected to heavy selling pressure. A large weighting of mining stocks in the UK FTSE index compounded the impact. The Pound may be susceptible to further selling pressure today with the Bank of England minutes due for release this morning.
Euro / US Dollar exchange rates
The Dollar and the Yen rose against the majority of the majors yesterday, as a flight to safety ensued, amid speculation that U.S officials will fail to agree on a deficit reduction plan, resulting in a second credit rating downgrade for the world’s largest economy. Congress’s budget supercommittee said last night that it had failed to reach an agreement on cutting the deficit.
The Dollar gained on risk aversion, as traders dumped higher-yielding assets in favour of safe haven currencies. The Euro was trading close to the lowest level against the Dollar in six weeks but recovered through the course of the day, amid suggestions that the single currency was looking oversold in the region of 1.34.
The political and economic turmoil in Europe continued, as Spain’s Socialists became the fifth European government to be ejected as a direct result to the region’s debt crisis. The Australian Dollar weakened to the lowest level in six weeks against the Dollar and may weaken further as stocks tumble worldwide and reduce appetite for risk.
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)
- Daily Foreign Exchange Rate Forecast – Pound slumped to the lowest level against the Euro in two months
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound slumped to the lowest level in two weeks against the U.S Dollar yesterday
- TorFX Currency News – The Pound slumped to the lowest level since January
- The Dollar slumped against the Euro, dropping to the lowest level on record
- The Pound came under further pressure against the Euro yesterday after UK mortgage approvals slumped to the lowest level in 11-years