The Pound weakened significantly against the majors, falling back towards 1.1805 interbank

Foreign Exchange Rates Currency News - The Pound weakened significantly against the majors, falling back towards 1.1805 interbankThe Euro traded within a tight trading range against the U.S Dollar on Wednesday, as markets were unable to break key technical support levels.

Sterling / Euro and US Dollar exchange rates

The Pound weakened significantly against the majors yesterday, falling back towards 1.1805 interbank versus the Euro, and losing ground versus a host of currencies following the Bank of England minutes. The MPC collectively voted to expand quantitative easing by £50 billion this month, taking the bond purchasing plan to £325 billion, in an attempt to boost the economy following a fourth quarter contraction.

The minutes revealed a split vote 7-2 in favour of £50 billion but the two dissenters Adam Posen and David Miles actually voted for a more aggressive increase of £75 billion. The news came as a surprise to the market and there were even suggestions before the release of the minutes that some members may have voted against further easing, which would have strengthened the Pound, as the prospect of more QE would have been less likely.

However, the fact that some members were looking for more indicates that the inherent weakness in the economy may be deeper than first thought and all eyes will be on Friday’s revised GDP figures. The preliminary data suggested the economy contracted 0.2% in the fourth quarter and a similar decline this quarter would equate to a technical recession. Coupled with the fact that the UK credit rating is also at risk, investors may shun UK denominated assets, further weakening the Pound.

The Central Bank was slightly more optimistic surrounding the outlook for economic growth, but estimated that further monetary easing was required in February to prevent inflation under-shooting the 2% target in the medium target. Technical considerations also played an important part as the Euro advanced on stop-loss buying and investor demand once the market broke through the 1.19 level and rose to a 2012 high.

The Pound also retreated to a 2-week low close to 1.5650 against the Dollar with a limited correction early this morning, as the U.S currency came under pressure following the rise in Asian stock markets overnight. There may be scope for further downside movement today and a report from the Confederation of British Industry may show that factory orders declined this month.

Euro / US Dollar

The Euro traded within a tight trading range against the U.S Dollar on Wednesday, as markets were unable to break key technical support levels. The single currency encountered strong resistance in the region of 1.3280 versus the Dollar and found support just above 1.32. There was an element of consolidation in the market yesterday following the Greek loan agreement the previous day.

Fitch credit rating agency downgraded Greece to C from CCC, although this was basically a technical move following the loan deal and debt restructuring. The IMF warned that there were still very big implementation risks associated with Greece and there remains important risks surrounding Portugal and Spain.

In terms of economic data, the Euro-zone PMI manufacturing index was marginally weaker-than-expected with only a small increase of 49 from 48.8 previously. The services data was also worse-than-expected, as there was a significantly weaker result from Germany. The data did go some way to dampen expectations that the economy would be able to pull out of the downturn.

Data Released

EU – EC Publishes Interim Growth Forecasts

GER 09:00 – IFO Index (February)

U.K 11:00 – CBI Industrial Orders (February)

U.S 13:30 – Initial Jobless Claims (w/e 18th February)

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