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The Pound declines against the majors, after BoE policy makers David Blancflower says that the outlook is bleak
GBPEUR/GBPUSD
The Pound declined against the Euro yesterday, ending a two-day advance, while the UK currency also found strong support around $1.5850 versus the U.S Dollar, after outgoing Bank of England policy maker David Blanchflower said that he doubted whether the UK economy would grow this year or next. Blachflower's pessimistic outlook for the economy has poured scorn on suggestions that we're through the worst of the recession.
Jeremy Stretch, a senior currency strategist at Rabobank International in London, said that "we'd moved too far forward pricing in a recovery story. We're having a bit of a reality check." The Pound also slumped against the majority of the major currencies, after an industry report showed that UK retail sales fell in May, another sign that the recession may not be easing.
A survey of retailers showed a net 17% reported dropping sales this month, compared with just 3% saying that sales rose in April. UK retail sales deteriorated in May and next month will remain "difficult" for stores, as unemployment continues to rise and lending conditions remained constrained. The report from the Confederation of British Industry said that "conditions were tough again in May for retailers, proving April's better sales figure was a temporary blip."
The UK government has predicted that the economy will endure its worst recession since the Second World War this year, as companies slashed jobs and cut production. Tesco Plc, the UK's biggest retailer, had the outlook on its A3 credit rating changed to "negative" from "stable" by Moody's Investors Service yesterday.
UK consumer spending has declined by the most since 1980 in the first quarter, as the rising jobless rate and escalating housing slump restrains sentiment. The report from the CBI yesterday has signaled that at least the pace of the decline in sales is slowing and companies were also the most positive about the business climate since November 2007.
The Pound weakened to 1.1430 against the Euro yesterday, after a reaching a high of 1.1544 on Wednesday. The benchmark FTSE 100 Index advanced for the first time in three days, despite Blanchflower's comments that the UK the economy faces "many false downs." The Pound was little changed against the Dollar, consolidating back towards $1.5947, after rallying to the strongest level since November 5th.
The UK economy is expected to contract 4.1% this year and the International Monetary Fund said on May 20th that the government should reduce borrowing and retrain spending. The Chancellor of the Exchequer Alistair Darling predicted a decline of as much as 3.5% in his annual budget statement on April 22nd.
The Pound also weakened yesterday after the UK business secretary Peter Mandelson said that the protracted bankruptcy of General Motors Corp will lead to substantial job losses at its Vauxhall unit in Britain. The UK currency has advanced 4.4% against the Dollar in the past two weeks and was due a correction, according to the 14-day relative strength index.
The gauge of technical analysis that traders use to predict currency moments was at 73.35 yesterday, from 74,81 the previous day. The Pound will continue to gain protection from a lack of attractive alternatives, especially if there are renewed fears over the Euro-zone bond markets. The UK currency is edging back towards the resistance at $1.6000 against the Dollar this morning, after Nationwide reported a 1.2% increase in house prices for May.
EUR/USD
The Euro failed to break a key resistance level against the Dollar yesterday, despite reports that German unemployment rose by less than expected in May. The number of people out of work increased to a seasonally adjusted 1,000 to 3.46 million, slightly less than initial forecasts. The jobless count was pushed down by as much as 20,000 because of the law that forces the agency to alter the way it counts the nation's unemployed.
The unemployment rate in Europe's largest economy may shrink 6% this year, as the government spends roughly €82 billion to fight the impact of the global credit crisis. Elsewhere, the Euro-zone business and consumer confidence data was slightly weaker-than-anticipated, which dampened the mood of optimism following the labour market numbers.
European confidence in the economic outlook rose to a six-month high, adding to signs that record low interest rates and government spending plans are beginning to pull the economy out of the worst recession since the Second World War. An index of business and consumer sentiment in the 16 nations sharing Euro increased to a reading of 69.3, from 67.2 in April.
Although the overall result of the data was slightly weaker than expected, the May reading was the highest since November, while consumers' price expectations, which turned negative for the first time on record last month, fell to the lowest level since at least 1990. There is mounting evidence that the worst of the financial crisis may be over, as manufacturing and service industry improve and global stock stand close to the highest level in six months.
Elsewhere, retail sales declined at a faster pace in May as rising unemployment prompted consumers to hold back spending. The Euro was higher against the Dollar after the confidence report and the U.S currency came under further selling pressure, after U.S jobless claims declined to 623,000 last week. In addition, the new home sales data was slightly weaker than predicted with sales almost unchanged at an annual rate of 352,000 for April.
The Pound briefly trades above $1.6000 against the Dollar, recording the highest level since November 5th
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The Pound briefly traded above 1.6000 versus the U.S Dollar for the first time in nearly seven months, while the UK currency also rallied to a high of 1.1544 against the Euro, amid increased optimism that the worst of the recession is over, stoking demand for British denominated assets. Sterling extended its rally throughout the course of the day, from a 23-year low reached in January, to 19% as the FTSE 350 Banks Index moved higher.
The UK currency appreciated as much as 1%, to a high of $1.6078 versus the Dollar, the highest level since November 5th, while the Pound climbed 1.4% versus the Euro. Brian Kim, a currency strategist at UBS AG said that “the pound is having a correction after being hammered hard last year. There’s some valuation argument."
The 19% drop in the Pound’s value against the Dollar over the past year has made the UK currency more attractive to investors, who think that additional government stimulus packages will drag the economy out of its current slump. Almost a quarter of the 220 fund managers surveyed by Bank of America in May said that the Pound is undervalued at its current level.
From a technical perspective, the Pound climbed almost 2% since it broke through its 200-day moving average versus the Dollar on May 20th, a sign that investors who use charts to plot currency moves that sterling will extend its advance. David Powell, a currency strategist at Bank of America, said that “the view that sterling is gaining ground is becoming more prevalent.”
The Pound has also gained 3.3% in value against the Euro in May and according to economists at Bank of America, the UK currency may appreciate to 1.1764 against the Euro by year-end, as we tentatively approach the yearly high of 1.1574. The Pound may also rise against the Euro because its decline during the financial crisis wasn’t justified, when considering the difference in interest rates.
Elsewhere, the Pound stood firm yesterday despite reports from the Nationwide Building Society, which said that UK house prices may keep falling for the rest of the year, as unemployment continues to rise higher. The UK economy will remain entrenched in a recession for the remainder of 2009, while the recovery next year is expected to be 'slow' and 'protracted'.
The rising jobless rate is a major concern for the government and unemployment may continue to rise next year because the labour market will lag behind any developments in the broader economy. Building societies, which account for about 18% of the UK mortgage market, are facing rising defaults, as the country struggles with its worst recession since the Second World War.
Moody’s Investors Service cut its rating on eight customer-owned lenders, including Nationwide, in April on expectations of increased credit losses. UK house prices are forecast to fall 14% this year, denting hopes that we’re through the worst of the recession. However, price declines have slowed in recent months, though it’s too early to say whether we have reached a turning point.
UK banks have granted more mortgages in April than the previous month, a sign that the property market may be stabilising. The UK mortgage market contracted last year and will probably shrink again this year, as net lending fell to £2.1 billion, from £8.9 billion a year earlier. In terms of economic data, the focus this morning will fall on a report from the Confederation in British Industry but the Pound may continue to make gains, providing global risk appetite improves.
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The Dollar gained for a second consecutive day versus the Euro, after the Treasury’s record-equalling $40 billion sale of two-year notes yesterday drew the most demand since November 2006, from a group of investors that includes foreign central banks. The U.S government auctioned $35 billion in new five-year securities yesterday.
The U.S currency weakened back above $1.4000 versus the Euro first the first since January, amid concerns that the U.S credit rating deteriorated as the budget deficit swelled. The government’s credit rating currently has a stable outlook and demonstrates the attributes of a AAA sovereign. The headline U.S economic data was close to expectations, as existing home sales rose to an annual rate of 4.68 million in April.
Although there is evidence of a revival in interest for foreclosure related properties as prices decline, the rise in inventories will dampen expectations of more than just a limited recovery in the housing sector. The focus today will fall on U.S durable goods orders and new home sales, both of which are expected to show some modest improvements on the month and that may hurt the Dollar, diminished its appeal as a haven.
The Pound rallies to a fresh yearly high against the Dollar, amid speculation that Britain will emerge from the recession faster than the U,S
GBPEUR/GBPUSD
The Pound rallied strongly against the Euro yesterday, rising towards 1.1400 by the close of trading last night, while the UK currency also tested resistance at $1.6000 versus the Dollar, amid speculation that Britain's financial institutions may weather the financial crisis better than their counterparts in Europe. Sterling moves were again influence by degrees of risk appetite and the UK currency gained ground in the day, as international equity markets rallied strongly.
Bank of England MPC member Timothy Besley stated that the government's budget position would have been tackled in the medium term, while there was also some short-term room for maneuver. Underlying fears over the debt burden will still be a significant factor for the Pound and concerns would return quickly on a run of disappointing data.
The Chancellor of the Exchequer Alistair Darling said last month that the budget deficit this year will reach £175 billion, or 12.4% of gross domestic product, the highest proportion amongst the Group of 20 nations. The Treasury plans to auction a record £22 billion of gilts this fiscal year, 50% more than in 2008, in a last ditch attempt to drag the economy out of the worst recession since the Second World War.
The Pound rebounded from three consecutive days of losses, after reports in the Daily Telegraph cited a comment from Jochen Sanio, president of the banking regulator BaFin, who said that debt levels at German banks will blow up "like a grenade". He went on to say that the problem will persist unless the coalition government plan to strengthen the financial sector.
The Euro also resumed the downward momentum against the resurgent Pound, after Euro-zone industrial orders fell in March for the eighth straight month. Michael Klawitter, a currency strategist in Frankfurt, said that "the amount of bad news that's priced into the Pound quite considerably exceeds that priced into the Euro. Sterling is also being buoyed on concerns there will be further bad news about German banks."
According to the report from the European Union's statistic office, industrial orders in the 16 nations sharing the Euro fell an annual 26.9%, after a revised 34.2% drop in February. Economists had predicted a more modest decline, as orders slipped 0.8% on the month. Orders declined for an eighth straight month in March, as the worst recession in sixty years curtailed global demand for machines and equipment.
The European economy has contracted at the fastest pace in at least 13-years in the first quarter of this year, as companies scale back production and cut their workforce. However, the slowing pace of the decline in industrial orders adds to speculation that the recession may be relenting. The European Union has cut its outlook for the Euro-zone economy to forecast a 2009 contraction twice as deep as it predicted just three months ago.
The Pound maintained a firm tone this morning, as global risk appetite improves, despite reports from the Nationwide Building Society that showed full-year earnings fell 69%, following the rise in impairment charges and low interest rates. Euro and Dollar buyers can currently take advantage of the best exchange rates so far this year. It would be prudent to use a stop order around 1.1300 against the Euro and 1.5800 versus the Dollar to protect against an adverse decline in stock market sentiment.
EUR/USD
The Euro declined against the Dollar yesterday following concerns over the German banking sector and speculation that last week's substantial gains were too large to sustain. The single currency depreciated for the first time in seven days, eroding gains that pushed the Euro to the highest level against the Dollar in four months.
The cautious tone extended into the U.S trading session, as the Euro dipped to lows near the significant support levels near $1.3860 versus the Dollar. Andrew Chaveriat, a technical analyst at BNP Paribas SA in New York, said that "Euro bulls are running out of buying power, a close below $1.3880 will signal further declines in the common currency."
In addition, a report from UBS AG showed that the Euro is unlikely to extend its gains against the Dollar without a revival in global demand. "the European Union and the ECB desperately need global demand to rebound soon, even as the domestic economy is getting less help from fiscal and monetary stimulus than most other economies, to take pressure off the economy and the currency."
The Dollar and the Japanese Yen declined against the majority of the 16-most actively traded currencies, after a government report showed that U.S consumer confidence rose to the highest level since September, reducing demand for the security of Dollar denominated assets. The Conference Board's index of U.S consumer sentiment surged higher in May to record the biggest gains since April 2003.
The U.S currency posted its biggest weekly decline against the Euro in two months last week, amid speculation that a deterioration of U.S creditworthiness will make assets such as treasuries less attractive to investors. Nevertheless, the positive tone of the consumer confidence data increased optimism that the economy would recover later this year, and stocks subsequently advanced for the first time in five days.
The Standard & Poor's 500 index increased 2.1%, amid speculation that the revival in the economy may encourage consumer spending, which accounts for roughly 70% of gross domestic product. However, rising unemployment and falling property values undermine that optimism and it will take time to establish a sustained rebound.
The sharp rise in global confidence is an important factor in boosting risk appetite, which saw the Dollar decline sharply towards $1.4000 against the Euro. The ongoing situation with General Motors Corp will be watched closely this week, amid strong expectations that the company is poised to file for bankruptcy. There will be some hopes than an easing of uncertainty will help boost sentiment and could weaken the Dollar further on improved risk appetite.
The Pound remained resilient against the majors, despite speculation that the UK will lose it's AAA credit rating
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Following on from last week, the Pound declined against the majors on Thursday, dropping towards the support at 1.1270 against the Euro and $1.5500 versus the Dollar, after Britain's top level credit rating said that it is more likely to be cut by Standard & Poor's, as the government's finances deteriorate, following the worst recession since the Second World War.
The U.K's AAA outlook was lowered to "negative" from "stable" because of the nation's increased budget deficit. The government's budget deficit this year will reach £175 billion, or 12.4% of gross domestic product. A downgrade in the credit rating would make Britain at least the fifth European nation to be cut this year because of the ongoing economic slump.
S&P lowered the outlook for the UK's credit rating to negative, while Moody's Investors Service said in a statement yesterday that the UK's top Aaa sovereign credit rating remains unchanged with a "stable" outlook because the government can absorb and reverse the debt burden. The government has given the Bank of England the authority to purchase up to £150 billion of assets with newly printed money, in an attempt to lower borrowing costs.
The government's efforts to shore up the nation's finances are being undermined by an economy entrenched in the worst recession since 1991. Unemployment surged higher to 2.2 million in March, the highest level since 1996, while tax income dropped 10% over the past year. The International Monetary Fund expects UK gross domestic product to contract 4.1% this year, the most since the Second World War.
The Pound dropped from the highest level in six months against the U.S Dollar, but recaptured most of the early losses throughout the course of the day, amid speculation that a downgrade wasn't imminent as two other rating companies affirmed that the UK's outlook is "stable". The UK currency touched a high of $1.5946 over the weekend, close to the highest level since November 10th, before closing back towards $1.5850 following the market holiday.
The Pound has gained 5.7% in value against the Dollar this month alone, and a further 1.8% versus the Euro, as UK retail sales increased and the housing market showed tentitative signs of recovery, as the worst of the recession appears to be over. A report from the Nationwide Building Society showed that house prices fell less-than-expected in April, after posting a surprise increase in March. Consumer confidence also climbed to the highest level in a year.
UK stocks fell the most in a month following the announcement from Standard & Poor's Rating Services, while the former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis is not over yet. HSBC Holdings Plc and the Royal Bank of Scotland Group Plc declined more than 3%, while the FTSE 100 Index retreated 2.8% on the session, making the measure the worst performing this year among the 23 developed markets.
Concerns over a medium-term downgrade in the UK credit rating will remain an important negative factor for Sterling. The underlying budget data also remained very weak with a £8.5 billion borrowing requirement for April, following a £18.2 billion shortfall previously and there will be significant medium-term currency risks from the debt situation.
The Pound tumbled against the majors yesterday, amid growing concerns over the security of UK denominated assets. Investors were encouraged to sell the Pound, amid speculation that the nation's credit rating will be cut further, following last week's announcement by Standard & Poor's. In addition, the Treasury plans to auction a record amount of gilts in this fiscal year, 50% more than in 2008.
The UK currency lost ground against the majority of the 16-most actively traded currencies, falling 0.4% against the Euro, after reports on Friday showed that UK gross domestic product in the first quarter dropped 1.9%. The result matched initial estimates, while consumer spending fell 1.2% and investment declined 3.8%.
UK consumer spending slumped by the most since 1980, while companies drained inventories at a record pace in the first quarter. The figures highlight the challenge facing the government, after the BoE governor Mervyn King said that the recovery in the economy will be "slow" and "protracted". Willem Buiter, a former BoE policy maker, said that "hopefully the first quarter was the biggest rate contraction. But the economy will be shrinking into next year, we'll be in a recession and have sharply rising unemployment for the next year or year and half".
Outgoing Bank of England policy maker David Blanchflower said that the UK economy may be about "three quarters" through the recession. The Deputy Governor Charles Bean said that the "bottom in activity may not be far off" and the pace of economic contraction should ease. Yilin Nie, a currency strategist at Morgan Stanley, confirmed that although UK economic data, "as highlighted by the recent rating outlook downgrade, we think much of the bad news is in the Pound price."
Following the Bank Holiday, the focus this week will fall on consumer data, with just the CBI distributive trades surveys and consumer confidence data due for release, alongside the latest Nationwide house price report for May. The Pound finished the week in a strong position against the Euro and the Dollar, a trend that is likely to continue in the short-term, amid a general pick-up in market sentiment.
EUR/USD
The Euro fell for the fist time in seven days against the Dollar yesterday, after a report in the Daily Telegraph cited a German banking regulator saying that debt at the nation's biggest lenders may increase. The subsequent deterioration in risk appetite saw stock decline, as traders flocked the security of lower yielding assets, such as the Japanese Yen and U.S Dollar.
In addition, the Yen actually advanced against all of the 16-most actively traded currencies, following reports that North Korea test-fired two short-range missiles, a day after conducting an undergorund nuclear test. The Euro declined to a low of $1.3947 against the Dollar, from $1.4017 in New York, after climbing to a high of $1.4051, the highest level since January 2nd.
The single currency also came under pressure, after Moody's Investors Service placed its rating outlooks for Bulgaria's DSK Bank AD and First Investment Bank Ltd on review for possible downgrade. The credit rating issure is likely to dominate market sentiment over the coming weeks and any Dollar gains may be temporary, amid speculation that bond sales this week will renew concerns that a record supply of Treasuries will jeopardise the U.S's AAA credit rating.
The Pound declines against the majors, after S&P downgrade the UK's credit rating to negative
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The Pound initially declined against the majors yesterday, dropping towards the support at 1.1270 against the Euro and $1.5500 versus the Dollar, after Britain's top level credit rating said that it is more likely to be cut by Standard & Poor's, as the government's finances deteriorate, following the worst recession since the Second World War.
The U.K's AAA outlook was lowered to "negative" from "stable" because of the nation's increased budget deficit. The government's budget deficit this year will reach £175 billion, or 12.4% of gross domestic product. A downgrade in the credit rating would make Britain at least the fifth European nation to be cut this year because of the ongoing economic slump.
The UK will sell a record £220 billion of bonds in the fiscal year through March 2010, as the recession cuts revenue and forces the government to increase spending. The UK economy has contracted 1.9% in the first quarter, the biggest since 1979, when Margaret Thatcher became Prime Minister.
A statement from S&P analysts said "we have revised the outlook for the UK to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of gross domestic product and remain near that level in the medium term."
The Pound dropped from the highest level in six months against the U.S Dollar, but recaptured most of the early losses throughout the course of the day, amid speculation that a downgrade wasn't imminent as two other rating companies affirmed that the UK's outlook is "stable". The UK currency touched a high of $1.5815, the highest level since November 10th, before closing 0.2% lower at $1.5722 last night.
S&P lowered the outlook for the UK's credit rating to negative, while Moody's Investors Service said in a statement yesterday that the UK's top Aaa sovereign credit rating remains unchanged with a "stable" outlook because the government can absorb and reverse the debt burden. The government has given the Bank of England the authority to purchase up to £150 billion of assets with newly printed money, in an attempt to lower borrowing costs.
The government's efforts to shore up the nation's finances are being undermined by an economy entrenched in the worst recession since 1991. Unemployment surged higher to 2.2 million in March, the highest level since 1996, while tax income dropped 10% over the past year. The International Monetary Fund expects UK gross domestic product to contract 4.1% this year, the most since the Second World War.
The Pound has gained 5.7% in value against the Dollar this month alone, and a further 1.8% versus the Euro, as UK retail sales increased and the housing market showed tentitative signs of recovery, as the worst of the recession appears to be over. A report from the Nationwide Building Society showed that house prices fell less-than-expected in April, after posting a surprise increase in March. Consumer confidence also climbed to the highest level in a year.
The subsequent impact on stocks saw the FTSE 100 Index fall and the Pound declined heavily against all of the 16-most actively traded currencies, as risk appetite deteriorates. The UK currency may extend its losses in the near-term, and Euro and Dollar buyers would be well placed to work a stop order to protect against a sustained downward move.
UK stocks fell the most in a month following the announcement from Standard & Poor's Rating Services, while the former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis is not over yet. HSBC Holdings Plc and the Royal Bank of Scotland Group Plc declined more than 3%, while the FTSE 100 Index retreated 2.8% on the session, making the measure the worst performing this year among the 23 developed markets.
Concerns over a medium-term downgrade in the UK credit rating will remain an important negative factor for Sterling. The underlying budget data also remained very weak with a £8.5 billion borrowing requirement for April, following a £18.2 billion shortfall previously and there will be significant medium-term currency risks from the debt situation. The Pound has weakened against the Euro this morning, finding support around the 1.1270 level but the UK currency has maintained a strong above against the U.S Dollar.
EUR/USD
The Euro rallied strongly against the U.S Dollar yesterday, rising to the highest level in four-months, after European manufacturing and service industries contracted at the slowest pace in eight months. A composite index for both industries rose to a reading of 43.9, from 41.1 in April, adding to evidence that the Euro-zone recession is easing.
The economy is showing positive signs that it may recover later this year, as numerous stimulus aid and interest rate cuts prop up global demand. German investor confidence rose to the highest level in three years in May, while European exports climbed for a second consecutive month. Nevertheless, policy makers are warning against excessive optimism.
Bundesbank President Axel Weber said last week that it is "not advisable" to assume that a recovery is "safely on track". Federal Reserve policy makers said last month that the global financial system is still "vulnerable to further shocks", according to the minutes from the FOMC policy meeting. European stocks dropped for the first time in six days yesterday, as the Fed projected a deeper recession in the U.S economy.
The Dollar slid to a four-month low against the Euro and dropped to the lowest level this year against Sterling, amid speculation that the U.S may lose it AAA credit rating. The U.S currency declined to a low of $1.3971 against the Euro, after Treasury yields rose the most in two weeks yesterday, amid concerns that the government will not be able to fund its fiscal spending.
In terms of economic data, the Philadelphia Fed index improved to -22.6 in May, from -24.4 the previous month. Initial jobless claims fell to 631,000 in the week ending 16th May, from 643,000 previously, while claims for unemployment benefits increased to a fresh record high at 6.66 million.
The Pound rallies to the higest level this year against the majors, after oil prices surged above $60 a barrel
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The Pound rallied to the highest level this year against the Dollar, as oil prices surged above $60 a barrel and stock market gains persisted on speculation that the worst of the recession may be over. The UK currency also challenged resistance levels above 1.1400 against the Euro, after the minutes from the Bank of England's last policy meeting recorded a 9.0 vote to keep rate on hold.
Policy makers were unanimous in their desire to keep borrowing costs unchanged at a record low of 0.5% and to increase the quantitiatve easing programme by a further £50 billion. There was some debate as to whether there should be an even more aggressive programme of bond buying and this likely to be slightly negative for Sterling.
The Pound extended gains against the Dollar yesterday, after breaking through its 200-day moving average, triggering a cluster of orders to sell the Dollar against the Pound. The UK currency broke through key resistance levels overnight and rallied to a fresh yearly high of $1.5813. The underlying positive sentiment for the Pound continued, after an industry report showed that UK manufacturers were the least pessimistic on the outlook for production in eight months in May.
The report from the Confederation of British Industry recorded further very weak levels for the orders component but the output reading was more positive and maintained hopes that the sector is stabilising. The improvement is risk sentiment has seen the Pound rally above key technical levels against the both the Euro and the Dollar. The upside momentum may continue after the MSCI World Index of stocks rose to the highest level in over six months, amid reports that Bank of America Corp raised about $13.5 billion in a stock sale.
Daragh Maher, deputy head of global foreign exchange strategy at Clayon, said that "sterling is benefiting from the return of risk appetite which has seen stocks outperform. A lot of bad news has already been priced into the Pound, making it one of the most undervalued currencies.". The UK currency advanced almost 2% against the Dollar yesterday, rising to it strongest level since December 17th.
Euro and Dollar buyers can currently benefit from the best currency rate for 2009, but should consider implmenting a stop order in the market to protect against a retracement following an aggressive upside move. A stop order could be utilised around the support at 1.1270 against the Euro and $1.5554 versus the U.S Dollar.
According to a number of key technical indicators, the Euro's decline against the Pound is likely to persist. Parabolic Systems, which traders use to track the strength of the trend, switched to selling euros against sterling two days ago. The Commodity Channel Index, a gauge of price direction, also indicated that the Euro has been in an oversold position since May 18th.
The risk to the Pound's upside momentum centres around the Bank of England and the possibility that it may be more aggressive with asset purchases, increasing them beyond the current authorisation of £150 billion. The minutes from the last policy setting meeting showed that policy makers discussed the prosepect of increasing the asset insurance program "should economic conditions require it."
The Dollar slumped to close to the lowest level in eight weeks against the Japanese Yen yesterday, while the U.S currency also declined sharply against the Euro, amid speculation that the Federal Reserve will increase quantitative easing measures to boost purchases of assets and unlock credit conditions.
The Pound rallies to the highest level in a year against the Dollar
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The Pound rallied to the highest level this year against the U.S Dollar, rising to a high of $1.5500 in New York, while the UK currency also strengthened for a third straight day against the Euro, after ICAP Plc posted increased revenue. Marks & Spencer Group Plc’s net income beat analyst’s initial estimates, increasing optimism that the worst of the recession may be over.
UK stocks rose to the highest level in four years, amid speculation that the government has begun talks with investors over the possibility of selling stakes in part-nationalised banks, while mining companies climbed with metal prices. Royal Bank of Scotland Group Plc, majority owned by the government, rallied 4.4% in London, as the FTSE 100 Index gained another 0.8%, rising to the highest level since January 8th.
The FTSE 100 has rebounded 28% from its lowest point of the year on March 3rd on increased optimism that the worst of the recession may be over. European stocks also rallied yesterday, after reports in Germany showed that investor confidence rose to a three-year high in May. The Financial Times reported yesterday that the UK government has begun talks with sovereign wealth funds and other investors about selling stakes in part nationalised banks.
The move is designed to improve confidence in financial stocks and the FTSE 350 Banks Index was up 3.3% on the day, while gilts fell after the Treasury sold £1.25 billion of the bonds. It will auction a record £5 billion of five-year notes in two days, as part of its quantitative easing program. Jeremy Stretch, a senior currency strategist at Rabobank International said that “news from the corporate front is pretty encouraging and that’s supporting the Pound.”
The Pound advanced as much as 1.1% to a high of $1.5514, the strongest level since December 18th last year, while the UK currency also rallied 0.5% to a high of 1.14000 versus the Euro, the highest level since May 7th. ICAP, the world’s biggest broker of transactions between banks, said that profit rose 4% to £175 million in the year to March 31st, while Marks & Spencer reported net income of £508 million.
In terms of economic data, the Pound also stood firm following reports that UK inflation slowed more than expected in April, to the weakest level in 15-months, as the recession undermined price pressure within the economy. According to the report from the Office of National Statistics, consumer prices rose 2.3% from a year earlier, marginally lower than the 2.4% anticipated.
A separate gauge of the report showed that the retail price index measure of inflation dropped an annual 1.2%, the most since records began in 1948. The results of the data will stoke concerns that the economy is slipping further into deflation and tempt the Bank of England to raise interest rates sooner than predicted.
The governor of the BoE Mervyn King said last week that inflation will slow “sharply”, reaching around 0.5% by September. Philip Shaw, chief economist at Investec Securities in London, said “if the recovery doesn’t ignite properly, that risks a very low inflationary environment, possibly deflation.” The drop in the inflation rate was led by the slump in housing costs, as energy prices fell.
The drop in the retail price index, used as a measure of the cost of living, was spurred by lower mortgage interest payments, after the Bank of England cut its benchmark interest rate to a record low of 0.5% and embarked on a period of quantitative easing. Excluding the cost of home loans, retail price inflation was 1.7%, the weakest pace since June 2002.
Policy makers within the monetary policy committee kept the benchmark lending rate unchanged in May and increased the asset insurance program to £125 billion, through the purchase of government and corporate bonds with newly created money. The UK economy is still submerged in the worst recession since the Second World War, after gross domestic product contracted 1.9% in the first quarter.
The Euro declined heavily against the Pound yesterday but the single currency may gain some support this morning, amid fundamental and technical factors. The minutes from the Bank of England’s last policy meeting may undermine support for the Pound, if the monetary policy committee reiterate the increase in quantitative easing measures.
In addition, a report from Societe Generale SA shows that the Euro must trade above the resistance level at 1.1410 against the Pound, created by the May 7th low, if it’s to decline as far the February low of 1.1574, a level that represents a 50% retracement of the downside move. Euro buyers would be well placed to take advantage of the current rate, or at least place a stop order around 1.1270 to protect against a rejection of the upper levels.
EUR/USD
The Euro rallied towards $1.3700 against the Dollar yesterday, after German investor confidence rose more than anticipated, to a three-year high in May. Stock markets subsequently rose and data signaled that the worst of the recession may be over. The report from the ZEW Centre for Economic and Social Research stated that its index of investor and analyst expectation increased to a reading of 31.1, from just 13 in April.
European stocks have gained impressively for the past two months, amid expectations that the government and ECB efforts to revive growth will drag the economy out of the current slump. The German economy has contracted at a record pace in the first quarter of the year but manufacturing orders and exports unexpectedly rose in May and business confidence bounced from a 26-year low.
The German Chancellor Angela Merkel will spend in the region of €82 billion to stem the worst recession in over sixty years. The European Central Bank has trimmed its key interest rate to a record low of 1% and announced that it will purchase €60 billion of covered bonds to help free up credit conditions.
The Dollar declined against all of the 16-most actively traded currencies yesterday, after three U.S financial firms’ efforts to return government bailout money increased speculation that banks have sufficient funds, reducing the demand for the security of U.S denominated assets. The U.S currency fell 0.5% to a low of $1.3636 against the Euro.
In terms of economic data, U.S housing starts unexpectedly fell 13% to an annual rate of 458,000, as builders began working on the fewest number of homes on record in April. The slump in home building has brought the supply of new properties below the rate households are being created, while surging unemployment will temper the likely rebound.
The Pound rallied against the majors, as UK stocks gained by the most in two weeks
GBPEUR/GBPUSD
The Pound rallied strongly against the Euro yesterday, rising 1.2% in London, while the UK currency also breached resistance around $1.5350 against the U.S Dollar, after an industry report showed that UK home sellers raised asking prices in May by the most in over a year. According to the report from Rightmove Plc buyers' access to mortgages improved, as banks freed up credit, and the number of properties saturating the market fell.
The average cost of a home in the UK rallied 2.4% from April to £227,441, recording the largest increase since February 2008. Miles Shipside, commercial director of Rightmove, said in an interview yesterday that "a drastic lack of supply is putting upward pressure on prices. There is increased demand among buyers and slightly more mortgage money becoming available."
The Bank of England have cut interest rate to an historic low of 0.5% and embarked on a period of quantitative easing to get banks lending again. The Central Bank said last week that there have been sigs of 'modest improvement' in housing activity, after the number of mortgages approved by banks rose to the highest level in 10-months.
The former Chancellor of the Exchequer Norman Lamont said yesterday that rising home values will be a key element of Britain's return to economic growth. However, signs of a recovery in the UK property market have been mixed, after prices fell an annual 17.6% in March, according to reports from Lloyds Banking Group Plc. The slump will leave a total of 1.8 million households, or 15% of those with mortgages, in negative equity by the end of 2010.
A separate report from the Royal Institution of Chartered Surveyors showed last week that enquiries from new buyers rose to the highest level since 1999. Bank's are loosening credit availability, as loans granted for home purchases climbed to 39,230 in March, compared to 37,716 in February.
The Pound climbed for a third straight day against the majority of the 16-most actively traded currencies, as signs that the worst of the recession may be over sent the FTSE 100 Index 2.3% higher. UK stocks gained by the most in over two week, while gilts advanced, as the Bank of England bought government bonds maturing in 10 to 25 years, as part of its program to lower borrowing costs.
The increase in risk appetite saw the Pound rally significantly against the Dollar, after the benchmark FTSE 100 Index soared towards the biggest increase since April 29th, led by a rally in financial shares. Lloyds Banking Group Plc surged 9.9%, after confirming investors will be offered £4 billion of stock this week.
Gareth Berry, an analyst a UBS AG in London, said yesterday that "we see further gains ahead for sterling, especially against the Euro. Investors have focused on the signs of stabilisation emerging from the UK economy". The Pound's 20% depreciation over the past year has made Britain the first choice when Schroders Plc started buying real estate in Europe last month.
The UK consumer prices data will be watched closely this morning for further evidence on economic direction and the recent inflation data releases have also tended to be erratic, which could trigger additional Sterling volatility. The overall impact may be limited as the Pound will continue to be influenced strongly by trend in risk appetite.
EUR/USD
The Euro held firm around the significant support level at $1.3420 against the Dollar on Monday and this helped provide a firmer tone for the single currency during the day, as selling pressure eased. European stock markets were generally resilient and the European trade data reported a headline surplus for the first time in close to a year.
The Euro also found support against the Dollar, after ECB governing council member Axel Weber signaled a reluctance to cut interest rates to below 1% and said that any further recovery in the German ZEW Index would help underpin the Euro today. There was no U.S economic data releases yesterday and the improvement in risk appetite saw the Dollar lose momentum during the day.
The Pound rallies back above 1.1200 against the Euro, after the European economy contracts at the fastest pace in 13-years
GBPEUR/GBPUSD
Following on from last week, the Pound rallied back above 1.1200 against the Euro, while the UK currency declined against the Dollar, after U.S stocks fell by the most since March. The Standard & Poor’s 500 Index reached the priciest level relative to earnings in seven months.
Ford Motor Co and U.S Bancorp declined at least 12% on concerns they are diluting per share earnings by raising money. In addition, General Motors Corp said that bankruptcy is probable, as the share price tumbled 32% in New York. The S&P 500 decreased 5%, while the Dow Jones Industrial Average lost 3.6%, spurring demand for safe havens.
UK stocks also fell, extending the FTSE 100 Index's first weekly loss in over a month, as oil companies followed crude prices lower and investors speculated that the two-month rally may not be supported by the outlook for the economy. The benchmark FTSE 100 dropped 0.3% on Friday, bringing the total loss for the week to 2.6%.
Stocks have rebounded 23% from its lowest point this year but posted its first weekly decline in five weeks but investors have been urged to reduce their holdings of stocks, after UBS AG said hopes of a recovery in the global economy are likely to fade.
A statement from UBS AG chief economist Larry Hatheway said "global economic conditions and earnings power are fragile and investor confidence fickle. Confidence in the 'green shoots' of recovery is now challenged by signs of weakness in U.S consumer spending."
Separately, a report from the Council of Mortgage Lenders said UK repossessions by lenders jumped 51% in the first quarter of the year, as the recession intensified. repossessions rose to 12,800, compared with 8,500 in the same quarter in 2008. The reading is up from 10,400 in the previous three months.
The Bank of England said this week that the UK economy may contract for the rest of the year and lending will take longer to resume that previously forecast. The Bank left the benchmark lending rate on hold at 0.5% last week, as unemployment jumped in the first quarter by the most since 1981. The increase in repossessions is still less than predicted and the group may revise its forecast for a total of 75,000 this year.
The Bank of England's pessimistic forecasts for the economy may indicate that the governor Mervyn King could need to print more money than the £150 billion currently allocated by the Chancellor of the Exchequer Alistair Darling. The Central Bank may need to ask the Treasury to expand its asset insurance program, after predicting that inflation will stay below target.
The Pound declined last week, amid reports that policy makers increased their asset purchases with newly created money by £50 billion, bringing the total £25 billion short of the maximum allowed. Any moves to extend the program further would tend to undermine Sterling sentiment.
The aggressive swings in risk sentiment will continue to drive the Pound against the Dollar, while the focus this week will fall on the release of the minutes from the Bank of England’s last policy-setting meeting. The Pound declined following the dismal tone of the bank’s quarterly inflation report and the minutes will be closely watched for any fresh developments in the economy.
Elsewhere, Tuesday’s CPI data for April should confirm a downward trend in consumer prices with the headline inflation rate expected to fall back to 2.4% from 2.9% the previous month. The retail price index is also expected to sink deeper into negative territory.
The Pound may find some support as a report from the Official of National Statistics is expected to confirm that official retail sales, which have been showing some signs of recovery, rose again in April. However, the first quarter estimates of UK gross domestic product will probably show that the economy slipped deeper into a recession.
EURUSD
The Euro declined against the Dollar and extended a weekly loss against all of the lower-yielding currencies, after reports showed that the European economy contracted by the most in at least 13-years, raising concerns that the pace of the recovery will be slow. Gross domestic product fell 2.5% from the fourth quarter, as companies cut production and slashed jobs following the worst global slump since the Great Depression.
The degree of the economic slowdown is curbing demand for European exports and eroding consumer sentiment, forcing companies to cut spending and jobs. The German and Italian economies have contracted by the most on record and Kenneth Wattret, chief euro-region economist at BNP Paribas, said that "the recession is an exceptionally deep one."
From a year earlier, the Euro-zone economy has contracted by 4.6%, the steepest decline on record, as the slump in western Europe is damaging eastern economies by cutting demand for their exports and crippling foreign investment in the former communist states. The European Central Bank lowered interest rates again on May 7th, to lowest level on record at 1%. Policy makers also pledged to buy €60 billion of covered bonds and securities back by mortgages and public sector loans.
The Dollar made further ground against the Euro on Friday, despite U.S economic data suggesting that the economy was stabilising. Industrial production fell 0.5% in April, following a revised 1.7% decline the previous month, suggesting that the pace of deterioration was slowing. Elsewhere, the New York PMI index also rose to the strongest reading since August 2008, as did the Michigan consumer confidence survey.
There is a relatively quiet schedule in the U.S this week, with just housing starts for April and the Philly Fed Index of any real significance. Therefore, the focus will once again return to stock market sentiment and the Dollar will come under further selling pressure if equity markets improve, following last week's decline.
The Pound rallies against the U.S Dollar, after UK stocks advance for the first time in four days
GBPEUR/GBPUSD
The Pound remained largely unchanged against the Euro yesterday, while the UK currency rallied back above $1.5200 versus the Dollar, after UK stocks climbed. The FTSE 100 Index added 0.7% to 4,362.58, the first advance in four days, as banks rebounded from the steepest retreat in more than six weeks, overshadowing the decline in the BT Group Plc.
The FTSE 100 Index is headed towards its first weekly decline in five weeks, amid concerns that a 23% rally since its low of the year on March 3rd may be over-exaggerated, given the outlook for global economic growth. Georgina Taylor, equity strategist at Legal & General Investment Management, said yesterday that “we’re not going toward a full-blown recovery but it’s about signs of improvement”.
Barclays Bank Plc rose 4.2% after Morgan Stanley advised investors to buy shares. However, BT Group lost 6.4% in London, after Britain’s largest phone company cut its dividend and posted a fourth-quarter loss. BT’s final dividend of 1.1 pence reduced the annual payout to 6.5 pence, from 15.8 pence a year earlier.
The net loss was £977 million in the three months through March, compared with a profit of £426 million last year, as the company predicted sales will fall 4 to 5% in 2009 and cut a further 15,000 jobs. BT plans to eliminate a “similar” number of jobs in the year through March 2010, bringing cuts to 30,000 over two years.
Yesterday’s report is the third time in less than eight months that BT has said that global services hurt overall performance. The plan to slash their workforce by a further 15,000 jobs is another blow to Gordon Brown, as the Labour government struggles to win back popular support, after unemployment soared to the highest level since 1997.
The global improvement in risk appetite may see the Pound rally towards a four-month high around $1.5350 against the Dollar. The UK currency may also take advantage of broad Euro weakness, after data released in the Euro-zone this morning is expected to show that gross domestic product declined further in the first quarter.
EUR/USD
The Dollar strengthened against the Euro for a second consecutive day yesterday, as a report showed that U.S initial jobless claims rose last week and a drop in U.S stocks spurred demand for the currency as a refuge. Henrik Gullberg, a foreign-exchange strategist at Deutsche Bank AG in London, said that “stock markets remain a key driver of currencies, and their decline is clearly reflected in the gain in the Dollar.”
According to the report from the Commerce Department, initial jobless claims increased to 637,000, from 605,000 a week earlier, while a separate report showed that U.S producer prices rose in April, as food costs surged. The 0.3% increase was more than expected and followed a drop of 1.3% in March.
Signs that the worst of the recession is over may boost commodity costs further, alleviating concerns over deflation, or an extended drop in prices that hurts the economy. Alongside the trillions of dollars pumped into the banking system by the Federal Reserve, an increase in raw materials may increase inflationary pressures, once an economic recovery gathers momentum.
The Euro also came under renewed selling pressure against the Dollar, after ECB governing council member Marko Kranjec said in an interview that policy makers “don’t exclude” buying first-class corporate bonds and short-term securities in the Central Bank’s asset-purchase program.
The Bundesbank President and governing council member Axel Weber countered and insisted that the ECB won’t increase such spending and warned against too much monetary-policy stimulus. Policy makers cut interest rates to a record low of 1% on May 7th and announced plans to buy €60 billion in covered bonds to free up credit markets.
Data Released 15th May
EU 10:00 Gross Domestic Product (Flash – Q1)
EU 10:00 Harmonised Consumer Price Index (Final - April)
The Pound declines against the majors, after the Bank of England says the recovery will be slow and protracted
GBPEUR/GBPUSD
The Pound declined heavily against the majors yesterday, briefly dropping under 1.1100 versus the Euro, while UK gilts surged higher, after the Bank of England released its quarterly inflation report. The statement from the Central Bank indicated that the UK economy faces a “slow” and protracted recovery this year and inflation will probably stay below its 2% target for the next three years.
In the accompanying press conference, Mervyn King said “the risks are weighted toward a relatively slow and protracted recovery. There are pretty solid reasons to question whether a recovery can be sustained and inflation is more likely to be below the target than above.”
The pessimistic tone of the report increased speculation that the Bank of England will expand its asset-buying program, after the Treasury increased the amount of money to be created by another third. The UK currency traded close to the lowest level against the Euro in over two weeks and the Pound retreated from a four-month high versus the Dollar.
Inflation is expected to decelerate to 0.4% this year, amid the worst recession since the 1980s. Policy makers kept interest rates on hold at a record low of 0.5% last week and added £50 billion to the bond-buying program. Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc, said that “the report gives the impression that the BoE feels they may need to step up quantitative easing beyond what has already been announced, which would be negative for Sterling”.
The Pound declined 0.5% against the Euro and fell to a low of $1.5136 against the Dollar, after the governor of the Bank of England Mervyn King said that the UK economy “requires a period of healing”. UK gross domestic product will contract on an annual basis for the rest of this year before growth is expected to resume in 2010.
Bonds extended their gains after the Bank of England also confirmed that it bought 2.9 billion of gilts maturing in five to ten-years at an auction yesterday. It received offers for $19.4 billion of securities. Investors are trying to assess whether policy makers will need to expand its purchases with newly created money to £125 billion.
The government has so far earmarked £150 billion to the program and King said that it’s too early to gauge its impact. The Pound’s losses may be limited amid signs that the recession is easing, after recent economic data showed that jobless benefits rose less-than-forecast and industrial production dropped at the slowest pace in 13-months.
Policy makers must assess whether the UK economy has reached a turning point and how sustainable that recovery would be. A gauge of service industries from banks to computing rose by the most since 1999 in April. The Bank of England also said that the weaker Pound will prop up prices.
The UK currency also declined after stocks dropped by the most in over three weeks, following Mervyn King's statement that it will take time for the economy to recover, while Land Securities Group Plc posted a record loss. A measure of property stocks tumbled the most since 1987, as the benchmark FTSE 100 Index lost 2.1% in London, the steepest retreat since April 20th.
UK stocks extended their decline throughout the course of the day, after a report in the U.S showed that retail sales unexpectedly fell in April for a second consecutive month. Separately, Ireland's Finance Minister Brian Lenihan said yesterday that the economy will contract by roughly 13% between 2008 and 2010.
The FTSE 100 Index has rebounded 22% from its yearly low of March 3rd, amid reports that manufacturing, employment and housing boosted optimism that the worst of the recession may be over. Nevertheless, the Bank of England's forecast that gross domestic product will contract on annual basis for the rest of the year has hampered sentiment.
EUR/USD
The Euro was again unable to sustain its momentum above the $1.3700 level against the U.S Dollst on Wednesday, as the single currency was undermined by a series of negative regional and global factors. Industrial production in the Euro-zone was weaker than anticipated, recording a 2% decline for March, following a 2.3% fall the previous month.
Output has now fallen an annual 20% and there are concerns that the latest GDP data relased on Friday will report very weak figures and point to a deepening recession. Elsewhere, European Central Bank council member Marko Kranjec said that the bank is likely to increase its asset-purchase program frim an initial €60 billion and may also broaden its scope from covered bonds.
The ECB chairman Jean-Claude Trichet last week stepped up to the ECB's response to the worst recession in a generation, cutting interest rates to a record low of 1% and announcing plans to buy covered bonds, as part of a credit easing approach. The plan has divided the 22-member governing council, with some policy makers opposing the asset purchases and pushing for the ECB to set an interest rate floor.
The Dollar rallied from a seven-week low against the Euro yesterday, after an unexpected drop in U.S retail sales increased demand for the currency as a haven. Sales decreased 0.4% last month, after dropping a revised 1.3% in March. The report from the Commerce Department indicated that rising unemployment is prompting consumers to hoard cash.
Elsewhere, other reports showed that companies continued to cut stockpiles as demand slowed, while rising oil costs pushed up prices for improted goods. The rising unemployment rate, falling home values and the biggest loss of household wealth on record may limit consumers' ability to spend for years to come. U.S stocks dropped for a third, as the reports indicated that any recovery from the recession is likely to be subdued.
The Pound rallied against the majors, after a host of economic data indicates that the recession is easing
GBPEUR/GBPUSD
The Pound rallied to its highest level in four months against the U.S Dollar, rising to a high of $1.5350 in London, while the UK currency also recovered some ground against the Euro, after a host of economic data provided further evidence that the UK economy is past the worst of the recession.
According to a report from the Royal Institution of Chartered Surveyors, the UK’s housing slump eased in April, as the number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by the smallest margin since January 2008. Elsewhere, a separate report from the Office of National Statistics showed that manufacturing shrank at the slowest pace in more than a year.
Industrial output shrank just 0.1% in March, the least in 13-months , while an index of services industries jumped by the most since 1999. The Bank of England last week extended its quantitative easing program by another two thirds, to the fight the threat of deflation by printing up to £150 billion and said that there are “promising” signs that the recession is abating.
George Buckley, chief UK economist at Deutsche Bank AG in London, said that the reports combined provides “more evidence to support the notion we are coming out of the worst of the downturn. At the rates we’re seeing it won’t be that long until a proper recovery starts. It may just be a couple of months until we see positive growth.”
The Pound rallied as much as 1.7% against the Dollar after the manufacturing data, while the British Retail Consortium also reported that retail sales rose in April from a year earlier. Sales at stores open at least a year increased an annual 4.6% in April, as total sales increased 6.3%. However, mounting job losses may still delay an economic recovery, as unemployment rose to the highest level since 1997.
A government report showed that the UK jobless rate climbed in the first quarter by the most since 1981, as the recession forced companies to cut output and slash jobs. The number of people out of work rose 244,000 in the three months through March to 2.22 million, the highest level since 1996. Claims for unemployment benefits rose by 57,100 in April, less than the 85,000 anticipated.
Although there was a smaller than expected rise in the UK claimant count, the rest of the labour market figures represent grim reading and the potential deflationary threat posed by the deteriorating labour market conditions is “not to be underestimated”. The UK economy is losing workers in a recession predicted by the government to be the worst slump since the Second World War.
Companies from banks to steelworkers are shedding jobs and Tata Steel Ltd said in a statement yesterday that earnings at its Corus steelmaking business may be hurt by the global slump after warning last week that 2,000 UK jobs are under threat. The economy contracted 1.5% in the quarter through April, after contracting 1.9% in the first quarter.
Brendan Barber, general secretary to the Trades Union Congress, said yesterday that “unemployment will almost certainly pass the 2.5 million mark by the Summer and is the country’s number one emergency, and the government must use all possible means to address it.” The unemployment figures were due to be published on Wednesday but the statistics office said that it would put the results on its Web site yesterday because there was an “accidental early release of some data”.
The jobless rate rose to 7.1%, the highest since August 1997, compared with an 8.9% increase in the Euro-zone and the U.S and 4.4% in Japan. Barclays Plc also confirmed yesterday that it plans to cut as many as 700 jobs this year at its UK information technology operations. In addition, the escalating threat of further job losses is keeping a lid on workers’ pay with average earnings in the first quarter falling 0.4% from a year earlier.
The Pound made gains against the majority of the 16-most actively traded currencies but the momentum is unlikely to last because of “long-term structural problems”, according Ian Stannard, a senior currency strategist at BNP Paribas SA. The data “may provide support for Sterling near-term, however we are still cautious about Sterling. The currency is unlikely to surpass $1.5400”.
Technical Analysis explained
The Euro may strengthen towards a six-week high against the Pound should the single currency close towards the resistance levels between 1.1013 and 1.1050, according to a series of trading patterns produced by Citigroup Inc. The so called support around 1.1050 represents the 55-day moving average and the 1.1013 level is the neckline of a “double bottom” pattern, indicating that a move towards these key levels could be the start of a fresh downward trend.
A “double bottom” occurs when a currency makes two consecutive troughs of roughly the same depth, and indicates that it may rebound. The “neckline” pass through the highest point of the double bottom. The Euro appears poised to test higher levels against the Pound and a break below 1.1000 could signal a move towards 1.0400. Euro buyers may wish to place a stop order in the market to protect against such a move.
EUR/USD
The Dollar declined against the Euro yesterday, trading close to the weakest level since March, as evidence that the worst of the global recession curtailed demand for safe havens. The Dollar traded at $1.3650 against its European counterpart and touching $1.3707 earlier in the session, after U.S retail sales remained unchanged in April.
According to Citigroup Inc, the Dollar will continue to drop against the Euro on market "normalisation" and speculation that a widening U.S budget deficit will undermine the currency. The Fed Chairman Ben Bernanke said this week that policy makers will help keep the Dollar strong by containing inflation and withdrawing credit from the financial system in a "timely" way.
The Dollar slumped 3.4% against the Euro on March 18th, after the Fed announced its plan to purchase up to $300 billion in treasuries to keep interest rates low. The quantitative easing policy raised converns that the Fed will flood the market with dollars and trigger upside inflationary pressures. The Dollar may continue to weaken today, ahead of the budget report, which is expected to confirm a deficit of £20.9 billion for April, compared with a $159.3 billion surplus at this point last year.
This would represent the first deficit for April since 1983, reinforcing the severe deterioration seen over the past year. There has been further speculation that the U.S AAA credit rating could be at risk and the budget data will probably underline those concerns. Elsewhere, U.S retail sales data will be watch closely for further evidence on the economy and a monthly increase would help risk appetite and weigh on the Dollar.
The Pound declined against the Euro for a third day, as UK stock market losses increased allure of safe haven assets
GBPEUR/GBPUSD
Following on from last week, the Pound declined against the Euro for a third day on Friday, after the Bank of England confirmed that it will increase bond purchases, as the UK economy emerges from the worst recession since the Second World War. The Monetary policy committee, led by the governor Mervyn King, will increase its asset insurance program by £50 billion and by the time it meets in August, policy makers anticipate having spent a total of £125 billion.
The nine-member committee also left the benchmark interest rate unchanged at a record low of 0.5%. The government has given the BoE the mandate to spend up to £150 billion to stave off the threat of deflation in an economy that has contracted by the most since 1979 in the first quarter. Lloyds Banking Group Plc said today that "difficult economic conditions" will persist for a year or more, exacerbating the bank's corporate bad loans.
The move towards additional quantitative easing will represent a significant medium-term risk for the Pound, as the UK currency weakened back towards $1.5000 against the Dollar and dipped to lows around 1.1100 versus there Euro. In the near-term, potential selling pressure on the UK currency from Bank of England measures should still be offset by the underlying improvement in risk appetite.
The nine-member monetary policy committee have cut interest rates on three occasions this year, but shifted focus to raising the money supply as the cuts lost their potency. The UK's main rate is still higher than the Federal Reserve's benchmark, which is in a range between zero and 0.25%, while the ECB cut rates to a record low of 1% last week.
Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said that "the Bank of England's move was a surprise for Sterling". The UK currency slipped 0.6% against the Dollar, after climbing towards a high of $1.5200, the strongest level since January 9th. Derrick also said that short-term losses for the Pound may provide "a buying opportunity" and the UK currency may rose as high as $1.55 in the next month.
The Pound continued to decline against the Euro and the Dollar yesterday, amid speculation that the recession is worsening, after the Bank of England extended its asset-buying program. The UK currency breached below 1.1100 versus the Euro for the first time since April 29th, as the FTSE 350 Banks Index declined by the most in two weeks.
Reports today will probably show that manufacturing production declined in April but the Pound has found some initial buying support, as a report from the Royal Institution of Chartered Surveyors showed that the UK housing slump has eased. The number of real estate agents and property surveyors saying prices fell, exceeded those reporting gains by just 59.9, the strongest reading since January 2008.
In a separate report this morning, the British Retail Consortium said that store sales rose in April from a year earlier, another indication that there are tentative signs that the economy is starting to pick-up. Retail Sales at stores open at least a year rose an annual 4.6% in April, while total sales increased by 6.3%.
Mounting job losses may still extend the housing slumo, as unemployment rose to the highest level since 1997 in the three month through February. UK gross domestic product has contracted 1.9% in the first quarter, while reports this morning will probably show that manufacturing probably fell 0.8% in March.
The Pound may drop towards the psychological support level at 1.1000 versus the Euro if stock market losses persist, while the UK currency may also struggle against the Dollar, as investors flock to the security of safe haven assets. In terms of economic data, the focus this week will be on the Bank of England inflation report, which should reflect the tone of the BoE statement last week.
EUR/USD
The Euro gained in support last week after the European Central Bank cut interest rates to a record low of 1%, in an effort to stimulate the economy. The Euro initially strengthened after policy makers refused to implement a greater cut in rates and speculation that they will adopt additional measures to revive growth.
In the accompanying press conference, the chairman of the Central Bank Jean-Claude Trichet said that the Euro-zone economy will stabilise in the second quarter of the year, although will remain at very weak levels. Policy makers have been divided on the best course of action to take, and Trichet called for a united approach to retain credibility in financial markets.
In addition, Trichet also confirmed that policy makers would begin buying Euro denominated covered bonds through an enhanced credit support approach but refused to confirm that policy makers would begin a period of quantitative easing through the same mechanics as the U.S Federal Reserve and Bank of England.
Trichet described the bank's plan to buy covered bonds as "credit easing" at the press conference in Frankfurt and said that the decision to cut rates by 25 basis points was appropriate. Details of the debt purchase will be revealed next month. Convered bonds are secured by property loans or lending to public sector institutions and differ from mortgage-backed securities because they're also supported by borrower's pledge to pay.
Ian Stannard, a senior currency strategist at BNP Paribas SA in London, said that "the euro has suffered up until now because the market has perceived the ECB to be behind the curve. Now they are starting to catch up. The fact that the ECB is taking more unconventional steps should be seen as a positive for the Euro. The market wasn't expecting the, to make this move."
The Euro approached a seven-week high against the Dollar yesterday, amid speculation that the Central Bank will signal an intent to keep interest rates on hold at 1%, increasing the allure of European assets, as global risk appetite improves. The Euro also gained in support, after a Chinese government report showed urban fixed-asset investment rose at the fastest pace in more than two years, spurring demand for higher-yielding currencies.
The Dollar declined against the majors after General Motors Corp said yesterday that it's more profitable than previously thought the largest U.S automaker will need to file for bankruptcy court protection. The Dollar is likely to come under further selling pressure this week, as a barrage of economic data shows further signs that the contraction in the economy is easing.
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The Pound declines against the majors, after the Bank of England announces another £50 billion in quantitative easing
GBPEUR/GBPUSD
The Pound declined against the Euro for a second day yesterday, after the Bank of England confirmed that it will increase bond purchases, as the UK economy emerges from the worst recession since the Second World War. The Monetary policy committee, led by the governor Mervyn King, will increase its asset insurance program by £50 billion and by the time it meets in August, policy makers anticipate having spent a total of £125 billion.
The nine-member committee also left the benchmark interest rate unchanged at a record low of 0.5%. The government has given the BoE the mandate to spend up to £150 billion to stave off the threat of deflation in an economy that has contracted by the most since 1979 in the first quarter. Lloyds Banking Group Plc said today that "difficult economic conditions" will persist for a year or more, exacerbating the bank's corporate bad loans.
The move towards additional quantitative easing will represent a significant medium-term risk for the Pound, as the UK currency weakened back towards $1.5000 against the Dollar and dipped to lows around 1.1100 versus the Euro. In the near-term, potential selling pressure on the UK currency from Bank of England measures should still be offset by the underlying improvement in risk appetite.
The nine-member monetary policy committee have cut interest rates on three occasions this year, but shifted focus to raising the money supply as the cuts lost their potency. The UK's main rate is still higher than the Federal Reserve's benchmark, which is in a range between zero and 0.25%, while the ECB cut rates to a record low of 1% yesterday.
UK stocks declined yesterday, led by Lloyds Banking Group Plc and Barclays Plc after both lenders said that bad loans will rise this year. The benchmark FTSE 100 Index slid 0.3% to 4,383.42, having earlier climbed as much as 2.8%, prior to the Bank of England interest rate announcement and accompanying statement.
Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said that "the Bank of England's move was a surprise for Sterling". The UK currency slipped 0.6% against the Dollar, after climbing towards a high of $1.5200, the strongest level since January 9th. Derrick also said that short-term losses for the Pound may provide "a buying opportunity" and the UK currency may rise as high as $1.55 in the next month.
EUR/USD
The Euro gained in support yesterday after the European Central Bank cut interest rates to a record low of 1%, in an effort to stimulate the ailing economy. The Euro initially strengthened after policy makers refused to implement a greater cut in rates and speculation that they will adopt additional measures to revive growth.
In the accompanying press conference, the chairman of the Central Bank Jean-Claude Trichet said that the Euro-zone economy will stabilise in the second quarter of the year, although will remain at very weak levels. Policy makers have been divided on the best course of action to take, and Trichet called for a united approach to retain credibility in financial markets.
In addition, Trichet also confirmed that policy makers would begin buying Euro denominated covered bonds through an enhanced credit support approach but refused to confirm that policy makers would begin a period of quantitative easing through the same mechanics as the U.S Federal Reserve and Bank of England.
At the press conference in Frankfurt, Trichet described the bank's plan to buy covered bonds as "credit easing" and said that the decision to cut rates by 25 basis points was appropriate. Details of the debt purchase will be revealed next month. Convered bonds are secured by property loans or lending to public sector institutions and differ from mortgage-backed securities because they're also supported by borrower's pledge to pay.
Euro buyers can still lock in a rate towards 1.1100 but the Pound declined over 2% in value against the Euro after the midday announcement, a trend that may continue in the short-term. If you would like a quote or some information surrounding the use of stop orders to protect against downside risks, please give me a call on my direct line listed below.
The Euro rallied to a one-month high against the Dollar yesterday, as traders speculated that the ECB's plan to buy €60 billion euros in covered bonds isn't aggressive enough to debase the single currency. The Euro climbed 0.2% to a high of $1.3356, after touching a high of $1.3470, the highest level since April 6th.
Ian Stannard, a senior currency strategist at BNP Paribas SA in London, said that "the euro has suffered up until now because the market has perceived the ECB to be behind the curve. Now they are starting to catch up. The fact that the ECB is taking more unconventional steps should be seen as a positive for the Euro. The market wasn't expecting the ECB to make this move."
The increase in risk appetite has hampered Dollar sentiment and the U.S currency continued to decline yesterday, after initial jobless claims data was slightly stronger-than-expected. The employment data this week will increase optimism that the economy is starting to stabilise and there will also be some hopes that today's non-farm payrolls data will be better-than-expected.
The Pound retreated against the Dollar yesterday, amid concerns that up to 10 U.S banks will need additonal capital
GBPEUR/GBPUSD
The Pound retreated against the majors in early Europe on Wednesday, but still maintained an underlying firm tone, as risk appetite continued to dominate. The UK currency initially declined against the Euro, amid concerns that some of the U.S's biggest banks will need additional capital, following the Federal Reserve's stress tests.
The Pound also declined against the U.S Dollar and lost as much as 1.5% versus the Japanese Yen, perceived as a safe haven against financial turmoil, amid speculation that Bank of America Corp will need £34 billion in new capital. The UK currency subsequently declined from a four-month high against the Dollar, even as UK stocks briefly erased their 2009 loss.
The FTSE 100 Index gained 1.4%, to 4,396.49 in London, its highest level since January 13th after reports showed that UK consumer confidence rose in April by the most in nearly two years. The Nationwide Building Society said that its gauge of sentiment climbed to a reading of 50, increasing by 8 points, the most in almost two years.
Elsewhere, a UK gauge of services industries from banks to computing rose by the most since 1999 in April, adding to recent evidence that the recession has started to ease. An index based on a survey of roughly 700 companies by the Chartered Institute of Purchasing and Supply rose by more than economists had predicted.
The National Institute for Economic and Social Research said that Britain may emerge from its worst recession since the 1930s in the fourth quarter of this year. Bank of England policy makers will assess today if they need to keep printing money to stimulate the economy through quantitative easing measures. Despite the optimistic tone of recent economic reports, the slump in growth persists and Halifax's housing index shows property prices will keep falling.
UK house prices still fell for a third consecutive month in April, declining 1.7% from the previous month and 17.7% from a year earlier. The economy has contracted 1.9% in the first quarter, the most since 1979 and gross domestic product will shrink 4.3%, the most since 1931, compared with a 3.7% preduction in February.
The Bank of England will leave UK interest rates on hold at 0.5% this lunchtime and policy makers will assess whether to spend the final tranche of the £75 billion of newly created money in UK debt markets. The Pound rallied towards 1.1350 against the Euro overnight and may continue to make gains against the Dollar if risk appetite improves.
Neil Jones, Head of European hedge fund sales in London, said that "rising risk aversion has taken some shine off the Pound. The world is being reminded that the recovery could potentially be some way off." Jones also said that the Pound may rebound against the Euro as the recession eases and will probably trade around 1.1750 by the end of August.
EUR/USD
The Euro was confined to narrower trading ranges on Wednesday, with strong support levels holding firm around the $1.3250 region against the Dollar. The single currency was unable to challenge key resistance levels, as caution prevailed, following the U.S stress tests. The Euro also declined for a second day against the Japanese Yen, amid speculation that the European Central Bank will lower interest rates this lunchtime.
The Central Bank's governing council members have been divided on the best course of action to stimulate the economy and the Euro will weaken further if policy makers consider less conventional measures, such as buying debt, under a banner of quantitative easing. The ECB will lower borrowing costs by a further 25 basis points to 1% today.
A 1% cut in rates, allied with no move towards quantitiative easing, would tend to push the Euro stronger against the majors and Euro buyers may wish to take adantage of the current rate or at least place a stop order to protect against such a scenario. The dovish sentiment surrounding the U.S Dollar continued yesterday, after the U.S ADP employment report showed that job losses for April was less than anticipated.
Data Released 7th May
U.K 12:00 Bank of England Interest Rate Announcement
The Pound rallied against the majors, after reports indicate the recession may be easing
GBPEUR/GBPUSD
The Pound rallied to the strongest level against the Dollar in four months yesterday, rising to a high of $1.5160 in London, as reports showed that the drop in commercial property and UK construction markets is easing. The UK currency also climbed to the highest level against the Euro since April 22nd, as report from the Royal Institution of Chartered Surveys said that the rate of decline in demand for UK property improved in the first quarter.
The UK index of construction rose to the highest level in seven months in April, amid an improvement in homebuilding, commercial real-estate and civil engineering. The gauge, based on a survey of more than 170 construction purchasing managers, rose to a reading of 38.1, from 30.9 the previous month. A reading below 50 indicates contraction but the reports combined provide some evidence that the recession is moderating.
The UK economy shrank by 1.9% in the first quarter of the year, the biggest contraction since 1979. Bank of England policy makers may start to assess whether they will need to extend their asset insurance program of printing money to purchase government bonds and help stimulate the economy.
Although the construction PMI was much better than economists had predicted, Roy Ayliffe, director at CIPS, said in a statement, "Against a backdrop of ongoing market uncertainty, fewer new orders and fierce competition, blue skies are still a long way off."
The increase in optimism saw the Pound gather momentum against the majority of the 16-most actively traded currencies. The UK currency stormed through resistance levels around $1.5000 against the U.S Dollar and will continue to make gains, providing equity markets improve. Following the optimistic tone of UK economic data yesterday, UK stocks surged to the highest level in almost four months, led by a rally in commodity producers and banks.
Jeremy Stretch, a senior currency strategist at Rabobank International in London, said "I'm reasonably confident we've passed the low point, and that's underpinning the resilience in Sterling". Clearly stocks have had a good run, and the risk story is on." The Pound rallied 0.7% against the Dollar yesterday and rose above 1.1300 at one point against the Euro. However, investors should be wary of a partial correction with strong resistance at 1.1360.
The benchmark FTSE 100 Index advanced 2.2% on the session, gliding through the highest level since January 13th. Royal Bank of Scotland Group Plc gained 9.1%, despite reports that Finance Director Guy Whittaker resigned, leaving the bank with just one director linked to the largest loss in UK corporate history.
Barclays Plc also gained 6.8%, as the share price rallied to a seven month high, while HSBC Holdings Plc increased 7.4% and Lloyds Banking Group Plc gained 10%. David Jones, chief market strategist at IG Index in London said "we are seeing an ongoing flow of positive sentiment driving stocks. This is a market that is showing no signs of weakness and seems to be ignoring any negative news."
The Bank of England are due to meet again on Thursday and the aggressive cuts in UK interest rates since October have provided some limited support for commercial markets. The MPC will leave borrowing costs unchanged at 0.5% this week and investors will be looking at the tone of the accompanying statement for any clues on whether policy makers will extend their quantitative easing program.
An industry report showed last week that manufacturing contracted at the slowest pace in eight months in April, while the Bank of England reported that UK mortgage approvals rose to the highest level in 10 months. The BoE bought £35.6 billion of corporate bonds last week, the lowest amount since it started purchasing securities in March.
The Pound may continue its upside momentum against the majors this morning, after Nationwide consumer confidence improved according to the latest data. UK service-sector PMI is also expected to remain firmer in April but any dip in sentiment is likely to undermine confidence in the UK currency and risk a move below $1.5000 in the near-term.
EUR/USD
Investors insatiable appetite for risk has weighed heavily on the U.S Dollar and the Federal Reserve is today planning to deliver results of stress tests on U.S banks that may show that about 10 companies may need additional capital to whether a deeper recession. The results of the tests may curtail the momentum surrounding global stocks and encourage investors back to the relative security of U.S assets.
The Dollar actually made gains against the Euro for the first time in three days yesterday, after Federal Reserve Chairman Ben Bernanke said that the U.S economic contraction may be easing. A separate report from the Institute of Supply Management showed that service industries contracted at a slower pace in April.
The Euro fell against the Dollar after a report showed that European producer prices dropped in March by the most in 22-years, bolstering the case for more action by the European Central Bank to revive the economy. The governing council committee have been divided in their opinions for the best way to tackle the recession and the Euro may rise against the majors because policy makers are expected to delay introducing quantitative easing measures.
The Pound rallies above $1.5000 against the Dollar, as UK stocks record the biggest monthly gain since 1992
GBPEUR/GBPUSD
Following on from last week, the Pound rallied towards $1.5000 against the Dollar on Friday, amid a firmer tone in risk appetite that sent global stocks rising higher towards the biggest monthly gain since 1992. The UK currency continued to decline against the higher-yielding currencies but remained relatively firm against the Euro, after German retail sales unexpectedly declined in March.
The benchmark FTSE 100 Index advanced 8.1% in April, the biggest gain since 2003, as banks and commodity producers rallied on optimism that the worst of the recession may be over. Royal Bank of Scotland Group Plc and Barclays Plc both jumped more than 9% on Thursday and financial shares are poised to rally further, sparking an equity bull market.
The rebound in risk appetite has seen all major sectors rise higher, which is an insight into the improvement in investor sentiment at the moment. The FTSE 100 Index has rebounded 21% from its low this year on March 3rd, reducing this year’s decline to 4.3%, as investors speculate that the pace of the economic slowdown may be easing.
UK consumer confidence has climbed to the highest level in a year, while the Nationwide Building Society revealed that house prices fell by less-than-anticipated. The average cost of a home in Britain fell 0.4% in April, following a 0.9% increase the previous month. Economists had predicted a more aggressive drop of 1.2%, as prices slumped 15% from a year earlier.
The UK economy is expected to contract by the most since the Second World War, according to a recent estimate from the International Monetary Fund. Tighter lending conditions have led to a reduced demand for housing, while unemployment rose above the 2 million mark for the first time since 1997.
The Bank of England have lowered interest rates to a record low of 0.5% and sustained a program of buying corporate and government bonds to stimulate the economy, through a process known as quantitative easing. The Central Bank will meet this week and the focus is likely to be on the continuation of the MPC’s planned £75 billion asset insurance program.
In terms of economic data, the Pound maintained its recent upside momentum yesterday, despite the market holiday. The UK currency will find further support in the early part of the week, as UK service sector growth is expected to climb away from November’s trough. Friday’s producer price data is not expected to have any significant impact, while any fresh updates on the recovery in the housing market will be watched closely.
The Pound will continue to test resistance around $1.5000 against the Dollar, providing equity markets continue to improve. According to Dresdner Kleinwort-Commerzbank, the Pound has the “potential for recovery” against the Euro because concerns about the UK economic slump is overdone. “It is becoming increasingly obvious that the scare stories about the economic development in Great Britain are exaggerated.”
EUR/USD
The Euro rallied against the Dollar yesterday and looks set to continue rising towards $1.3700 in the short-term, as the improvement in global stocks reduced the demand for havens. The single currency has hit resistance above the $1.33 level in Europe, as liquidity was undermined by a market holiday in the UK.
In contrast to recent trading sessions, European economic data was actually weaker than expected with German retail sales falling by 1% in March, to record a 1.5% annual decline. Rising unemployment has encouraged consumers to trim spending, while companies scale back production, exacerbating the worst recession since the Second World War.
The jobless rate in Europe's largest economy rose for a sixth consecutive month in April and the government said that the economy may contract 6% this year. Retail sales have declined for an 11th consecutive month in April and companies remain pessimistic about meeting their targets this month because of "weak underlying economic conditions".
In addition, Sentix business confidence index only improved marginally to -34.4 in May, from -35.3 the previous month, although economists expected a much more significant improvement. There will be further uncertainties over ECB policies ahead of Thursday's governing concil meeting, with speculation surrounding the stance on quantitative easing.
Policy makers are also expected to cut interest rates to a new record low of 1% and the Euro may weaken against the majors in the build-up to Thursday's announcement. The Dollar continued to decline against all of the 16-most actively traded currencies, after U.S stocks rallied again on Monday, almost erasing the year-to-date decline.
U.S economic data was also stronger than forecast with pending home sales rising 3.2% in March, compared with expectations of no change. There was also an unexpected increase in construction spending for the month, compared with speculation of a further monthly decline. The data will reinforce the degree of risk appetite sweeping through the market and the Dollar is likely to weaken further, as global confidence improves.
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Worse than expected GDP figures released in the US.
Trading just below 1.50 for Sterling versus Euro.
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The Pound rallied against the Dollar, rising to a high of $1.4950, amid a rise in risk appetite
GBPEUR/GBPUSD
The Pound rallied against the Dollar yesterday, rising to a high of $1.4950 in London, amid a firmer tone in risk appetite that sent UK stocks higher and climb towards the biggest monthly gain since 1992. The UK currency pushed back towards $1.4800 by the close of trading last night, as the Dollar regained some ground and resistance levels held firm.
The benchmark FTSE 100 Index advanced 1.3%, culminating in an 8.1% increase this month, the biggest since 2003. Banks and commodity producers rallied on optimism that the worst of the recession may be over. Royal Bank of Scotland Group Plc and Barclays Plc both jumped more than 9%, as Fidelity International said that financial shares are set to rally an spark an equity bull market.
The rebound in risk appetite has seen all major sectors rise higher, which is indicative of investor sentiment at the moment. The FTSE 100 Index has rebounded 21% from its low this year on March 3rd, reducing this year's decline to 4.3%, as investors speculate that the pace of the economic slowdown may be easing.
UK consumer confidence climbed to the highest level in a year last month, while a separate report from Nationwide Building Society yesterday showed that house prices fell by less than economists had predicted. The average cost of a home in Britain fell 0.4% in April, after a 0.9% increase the previous month. Economists had anticipated a more aggressive drop of 1.2%, as prices slumped 15% from a year earlier.
The UK economy will shrink by the most since the Second World War this year, according to recent estimates from the International Monetary Fund. Tighter lending conditions has led to a reduced demand for housing, while unemployment has risen above 2 million. Nevertheless, an increase in mortgage approvals and lenders' expectations that credit conditions will ease suggests that the housing market slump may be easing.
Fionnuala Earley, chief economist at Nationwide Building Society, said that "the correction in house prices and improved affordability conditions provide a good grounding for the market once domestic and global economic conditions once again become more favorable." The quarterly decline in house prices fell to 3.1% in April, the smallest drop in a year, from a 4.1% decline in March.
The Bank of England have lowered interest rates to a record low of 0.5% and sustained a program of buying assets to stimulate the economy, through a process known as quantitative easing. The Central Bank will convene again on the 7th May and is not expected to announce any changes to the asset insurance program.
The Pound fluctuated around 1.1150 against the Euro yesterday, failing to establish an upside move beyond this level. The UK currency will find some support this morning if the consumer lending and manufacturing PMI data is stronger-than-expected, especially if the PMI index rises firmly, while any further decline in consumer credit would tend to unsettle confidence.
Elsewhere, UK mortgage approvals for March is expected to show that the number of home loans granted rose to the highest level in 10-months, enhancing speculation that the economic slowdown is deteriorating. UK consumer confidence also climbed to the highest level in a year this month and the Pound will continue to test resistance around $1.5000 against the Dollar, providing equity markets continue to improve.
EUR/USD
The Euro remained largely unchanged against the Dollar yesterday after German unemployment rose for a sixth straight month in April, as exports withered amid the worst recession in a generation. The number of people out of work increased 58,000 on the month to 3.46 million. The adjusted jobless rate rose to 8.3%, from 8.1% in March, the highest level in four years.
The German economy will probably shrink 6% this year, amid a slump in global demand for exports, while companies slash jobs and cut output to reduce costs. While economic reports this week suggests that confidence across the Euro-zone is stabilising, the continued increase in unemployment may curtail the pace of consumer spending and delay an economic recovery.
German exports account for roughly a third of gross domestic product and may drop by 23% this year. The slump in the economy has prompted the ECB to embark on the most aggressive policy easing in its 10-year history. The Central Bank have lowered borrowing costs by 300 basis points to a record low of 1.25% and signaled that it may cut again next week.
The ECB Chairman Jean-Claude Trichet has imposed a vow of silence on his fellow governing council members, as they bicker and struggle to agree on what to do next to rescue the economy from the ongoing recession. Trichet said on April 27th that council members had agreed "not to give any further indications" on future policy.
The Dollar continued to decline against the majors yesterday, as gains in the stock market reduced the appeal of the U.S currency as a safe haven. The greenback also came under pressure, amid speculation that Chrysler LLC will go bankrupt. President Barack Obama said he is hopeful Chrysler will be able to forge an alliance with Italian carmaker Fit SpA.
In terms of economic data, U.S initial jobless claims was close to market expectations with a decline of 631,000, from a revised 645,000 the previous month. In contrast, the Chicago PMI index was stronger-than-expected, as the regional manufacturing survey improved following a recovery in orders.
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Foreign Exchange Outlook Podcast - 29th May
