The Pound weakened against the U.S Dollar and the Japanese Yen yesterday


Foreign Exchange Rates Currency News - The Pound weakened against the U.S Dollar and the Japanese Yen yesterday

by Adam Solomon

Sterling / Euro and US Dollar exchange rates

The Pound weakened against the U.S Dollar and the Japanese Yen yesterday, trading back towards 1.5550 overnight, as a drop in Asian stocks spurred demand for the safe haven assets. The UK currency is still poised to record its first weekly gain in six weeks against the Dollar, after a report earlier today showed that UK consumer confidence rose for the first time in four months.

An index of sentiment gained 1 point from August to minus 30, as Britons became more optimistic about the outlook for spending. A measure of households’ expectations for the economy over the coming year rose 4 points to minus 27. Despite ongoing concerns about the state of the global economy, the report will provide some optimism that consumer spending will improve over the coming months.

The increase in September stops the rot but still leaves confidence 10 points lower than September 2010. The Bank of England’s monetary policy committee has indicated that they are becoming increasingly concerned with the slump in economic activity during the third quarter and expect the recovery to slow further, causing a probable contraction in growth.

As a result, three policy makers have publicly backed suggestions that further stimulus through additional quantitative easing will be required. The Pound is likely to weaken in the build-up to the October 6th interest rate announcement, amid speculation that the MPC will expand the bond purchasing plan as early as next month, despite data this week showing improved consumer confidence and mortgage approvals at the highest level in 20 months.

The latest Nationwide House price index was almost in line with expectations, recording a 0.1% gain for September following a revised 0.6% decline the previous month. The lending data was also marginally stronger-than-expected although the impact in the market was limited. The Swiss National Bank announced that it would increase the proportion of reserves held in Sterling, which helped boost the Pound against the majors.

The move by the SNB increased the potential for Sterling to be seen as an attractive reserve asset and it pushed to 1.57 against the Dollar before selling off overnight. There is still an underlying lack of confidence in the UK outlook with further speculation that fiscal policy might have to be adjusted to counter a sharp slowdown in the economy.

The Pound strengthened significantly against the New Zealand Dollar over night, as the Kiwi fell to its lowest level in six months against the U.S Dollar. Standard Poor’s joined Fitch Ratings in cutting the country’s credit rating, adding to concern that borrowing costs will increase. The Kiwi was trading lower against all of the 16 most actively traded currencies, as a survey also showed that business confidence fell in September.

Euro / US Dollar exchange rates

The Euro encountered strong support in the region of 1.36 against the U.S Dollar, as investor bets increased that leaders in the region will agree on measures to aid member nations that are struggling to pay their debts. The German parliament approved legislation to give the EFSF more powers with a strong majority support, as total dissenters were kept below 90.

There was certainly a degree of relief that the vote had been passed and Merkel’s government is also safe in the short-term. Markets will now focus on six other countries where the EFSF legislation has yet to be ratified. There were no major developments surrounding Greece during the day, as the IMF resumed its meetings and the Cabinet is due to convene on Sunday to discuss further austerity measures.

The latest U.S initial jobless claims was better-than-expected with a decline to 391,000 in the latest week, from 428,000 previously and this was only the second reading below 400,000 since April. The latest GDP revision was also slightly better than previous estimates, which improved risk appetite during the day and weakened the Dollar.

Today’s Exchange Rate Data

U.K 00:01 – Consumer Confidence (September)

GER 07:00 – Retail Sales (August)

EU 10:00 – Flash HICP (September)

EU 10:00 – Unemployment Rate (August)

U.S 13:30 – Personal Income / Consumption (August) – Core PCE

U.S 14:45 – Chicago PMI (September)

U.S 14:55 – Michigan Sentiment Survey (September Final)

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