by Adam Solomon
Sterling / Euro and US Dollar
The Pound rallied against the Euro yesterday, rising above 1.2150, while the UK currency also made modest gains versus the majority of the 16 most actively traded currencies, with the exception of the U.S Dollar, which is gaining on risk sentiment. Sterling gained for a third straight day against the Euro, amid growing confidence that the UK will recover at a faster rate that the Euro-zone.
The British Chamber of Commerce raised its growth forecast for 2010 and 2011 and the Pound also benefited from speculation that European economies will struggle to contain their budget deficits, while Britain prepares to implement the most aggressive public spending cuts in a generation. The BCC raised its 2010 forecast for UK gross domestic product to 1.7%, indicating that the economy will weather the cuts and continue to recover.
Lutz Karpowitz, a currency strategist at Commerzbank AG, said that “most of the economies worldwide aren’t recovering as quickly as central banks would like, but at least in the UK you don’t have the debt crisis problem. The Pound’s gain is also part of a general weakness in the Euro.” The Pound was up 0.2% against the Euro yesterday, but gains were limited due to the market holiday.
Gains by the Pound may be limited this week, as other reports may signal that economic growth will stall amid a slowing housing market and government spending cuts. Hometrack Ltd reported yesterday that UK house prices slipped for a second month in August, with the average cost of a home in Britain falling 0.3%.
Niels Christensen, a currency strategist at Nordea Bank AB, said that “there’s a lot of concern about the UK growth outlook. We could see some weakening in the Pound.” However, a report overnight showed that UK consumer confidence unexpectedly rose in August for the first time in six months, a sign that the UK economy continues to gather momentum.
An index of sentiment rose 4 points to minus 18, sharply higher than the minus 24 anticipated. Nick Moon, managing director of Gfk NOP Social Research, said that “a further fall would have made a double dip recession seem a very real prospect. The single biggest improvement has been in confidence in the economy in the next 12-months and this looks particularly encouraging on first sight.”
The UK economy expanded 1.2% in the latest estimate for the second quarter, as a jump in construction and stock rebuilding offset a slide in services industries. The Bank of England Deputy Governor Charles Bean still cautioned that officials may need to expand emergency stimulus measures to support the recovery.
The Pound was unable to break through resistance in the $1.5580 region yesterday and drifted weaker through the course of the day. Global risk conditions will continue to play an important role and Sterling will be much more vulnerable to selling pressure when sentiment deteriorates. Falling equity markets have been a negative influence over the past day and Sterling weakened to lows around $1.5450.
Euro / US Dollar
The Euro was unable to break through resistance levels above $1.2750 against the Dollar and drifted to lows near $1.2680 by the close of trading last night. Despite an initially favourable reaction to the Fed Chairman Bernanke’s comments on Friday, underlying confidence in the U.S economy remains fragile with further expectations of an underlying slowdown.
There was also a lack of confidence ahead of Friday’s non-farm payrolls report on Friday, with markets expecting a headline decline in payrolls, while a lacklustre increase in yesterday’s data failed to have a significant impact. There was also some persistent doubts surrounding Euro-zone economies, as yield spreads continued to widen following a weaker-than-expected Italian bond auction result.
Data Released 31st August
U.K 00:01 – Gfk Consumer Confidence (August)
U.K 09:30 – Mortgage Applications (July)
GER 09:00 – Unemployment (August)
EU 10:00 – Flash HICP (August)
EU 10:00 – Unemployment (July)
U.S 14:00 – Case Shiller House Prices (June)
U.S 14:45 – Chicago PMI (August)
U.S 15:00 – Consumer Confidence (August)
U.S 19:00 – FOMC Publishes Minutes of 10th August Meeting
Related posts:
- Daily Foreign Exchange Rate Forecast – The Pound remained largely unchanged against both the U.S Dollar and the Euro yesterday
- Daily Foreign Exchange Rate Forecast – The Pound rallied strongly against the U.S Dollar
- Daily Foreign Exchange Rate Forecast – The Pound rallied against the struggling U.S Dollar
- Daily Foreign Exchange Forecast – The Pound traded towards the lowest level in four weeks against the U.S Dollar yesterday
- Daily Foreign Exchange Rate Forecast – The Pound remained in the ascendancy yesterday
