GBPEUR/GBPUSD

The Pound weakened 0.3% against the Euro yesterday but looks poised to test the long-term trend resistance at 1.1270, despite reports that UK home sellers reduced asking prices in November for the first time three in months. The report from Rightmove Plc, the UK's biggest property website, raised concerns that the UK may continue to trail other major economies in emerging from the recession.

The UK currency also fell against the Swiss Franc, after average home prices fell 1.6% from October, after rising 2.8% the previous month. A report last week showed that the Euro-zone economy expanded 0.4% in the third quarter, while the UK remains mired in the worst recession since the Second World War.

Ned Rumpeltin, a currency strategist at Nomura International Plc, said that "the divergence in the near-term growth prospects between the UK and the continent is likely to keep investors more cautious towards Sterling." Nevertheless, the Pound has rallied strongly against the Euro over the past week and climbed 1% to a high of $1.6863 versus the U.S Dollar.

The minutes from the Bank of England's last policy meeting are scheduled for release tomorrow and the Pound may be susceptible depending on the tone and language used in the report. Officials elected to expand the so-called quantitative easing program by £25 billion earlier this month, bringing the total to £200 billion.

Jeremy Stretch, a senior currency strategist at Rabobank International, said that "people are a little nervous there will still be more talk of further quantitative easing in the minutes." However, any suggestions of a move away from emergency stimulus measures may just give Sterling the impetus to climb above 1.1270 versus the Euro and test the yearly highs around $1.70 against the Dollar.

The Pound has gained 1.8% against the Euro over the past month and rose marginally after the Bank of England's decision on November 5th. Antje Praefcke, an analyst at Commerzbank AG, said that "evidence that there were MPC members in favour of extension in excess of £25 billion should weigh on the Pound and help Euro-Pound recover from its recent lows."

The UK currency has strengthened as much as 0.5% against the U.S Dollar, after data showed that futures traders last week decreased bets that the Pound will decline against the Dollar. Bank of England policy maker Andrew Sentance said yesterday that the Central Bank runs the risk of stoking inflation if it keeps emergency stimulus measures in place for too long.

Sentance displayed an optimistic tone as he delivered his speech at Royal Holloway College in Surrey and said that business and consumer surveys, the global economic rebound and signs of slowing increases in unemployment suggests that Britain has returned to growth. The BoE governor Mervyn King prefers to keep an "open mind" on the need for additional stimulus.

Signs of an economic revival can be found in the latest manufacturing survey from the Confederation of British Industry, which shows higher levels of investment intentions and stock levels compared with this stage of previous recessions. Sentance also said that retail surveys by the CBI and British Retail Consortium shows "positive signs."

The Pound built an early advance against the Dollar yesterday, gaining support from an improvement in risk appetite, as the FTSE 100 Index rising to the highest level in 14-months. As equity markets advanced, the Pound strengthened towards $1.69 against the U.S Dollar and has developed firm support in the region of 1.12 versus the Euro.


EUR/USD

The Euro weakened against the lower-yielding currencies yesterday and declined against 9 of the 16 most actively traded currencies, after an official within the International Monetary Fund said that the global economic recovery may be slow. Dominique Stauss-Kahn, the managing director of the IMF, spoke to reporters in Beijing and the Euro subsequently declined towards $1.4962.

The headline U.S retail sales data was marginally stronger-than-expected with a 1.4% increase in October. The September figures were also revised weaker to show a 2.3% decline and there will be further doubts over the strength of consumer spending. The New York Manufacturing PMI also recorded a decline and risk appetite was slightly weaker following the data, underpinning the Dollar.

The Federal Reserve Chairman Ben Bernanke said yesterday that policy makers would pay close attention to the implication of changes in the value of the Dollar. The U.S currency made initial gains, but could not sustain its advance, as Bernanke also remained cautious over the economy and repeated comments that interest rates would stay at ultra-low levels for a prolonged period.


Data Released 17th November

U.K 09:30 Consumer Price Index (October) - RPI

EU 10:00 Foreign Trade Balance (September)

U.S 13:30 Producer Price Index (October) - Ex Food & Energy

U.S 14:00 TICS Capital Flows (September)

U.S 14:15 Industrial Production (October) - Capacity Utilisation

U.S 18:00 NAHB Housing Index (November)

written by Adam Solomon

Labels: daily-insight