GBPEUR/GBPUSD
The Pound declined against the Euro yesterday, while the UK currency dropped below its 200-day moving average versus the Dollar, amid concern that the UK’s fiscal condition is deteriorating, putting its sovereign credit rating at risk. Sterling fell through the pivotal $1.60 level for the first time since October 15th yesterday, falling to a low of $1.5922.
UK gross domestic product for the third quarter was revised higher to a figure of -0.2%, from the -0.3% estimate previously, but the result was weaker-than-expected, with some speculation that there could be a figure of zero or better. The data had a small negative impact on the Pound, despite expectations of positive growth for the fourth quarter.
The Pound slumped below the moving average of $1.6013 against the U.S Dollar and Sterling is the only currency from the Group of Seven industrialised nations to move through its 200-day moving average versus the Dollar in the fourth quarter. Underlying confidence surrounding the UK debt position remains fragile and there is persistent speculation that there could be an important loss of confidence in 2010.
Michael Shaoul, chief executive officer of Oscar Gruss & Son Inc, said that "given the market’s recent contemplation of sovereign risk, it should come as little surprise that the Pound would come under greater pressures that some other senior currencies. Certainly there is no better way to turn sentiment of local traders against their own currency than to force through a last minute populist bonus tax, and it would be ironic if this proved the catalyst for sharply lower sterling."
The Chancellor of the Exchequer Alistair Darling announced this month that banks would have to pay a one-time levy of 50% on discretionary bonuses of more than £25,000 they award. Fitch Ratings said in November that the UK’s sovereign credit grade is the most at risk among the top-rated nations and that Britain needs "the largest budget adjustment."
The UK posted a 20.3 billion budget deficit in November, the largest on record since 1993, pushing the national debt above 60% of economic output. Hans-Guenter Redeker, head of global currency strategy at BNP Paribas SA, said "if the government doesn’t go ahead and consolidate the budget significantly, then they are going to run into severe trouble with regard the rating."
BNP predicts that the Pound will slide 12.5% to $1.40 by the end of 2010, while the UK currency is expected to appreciate to $1.67 versus the Dollar. UK stocks advanced yesterday, extending the biggest annual rally since 1997, before reports that showed U.S consumer spending increased by more than anticipated.
EUR/USD
The Dollar traded close to the highest level in more than three months against the Euro yesterday, after U.S consumer spending rose for the sixth time in seven months. The Euro attempted to rally earlier in the day, but gains soon attracted fresh selling pressures, as Moody’s Investors Services downgraded Greece’s credit rating, contributing to the negative sentiment for the Euro.
There was also a decline in German consumer confidence for the third consecutive month, while the IFO institute warned that credit availability for German companies had tightened in December, compared with the previous month. The U.S existing home sales data was stronger-than-expected, with a rise in the annualised selling rate to 6.54 million.
U.S third quarter gross domestic product was revised down to an annual rate of 2.2% from 2.8% previously, while the latest Richmond Fed Index returned to negative territory. Nevertheless, there was still some additional Dollar support on yield grounds, which helped maintain a firm tone for the U.S currency.
Data Released 23rd December
U.K 09:30 BoE Monetary Policy Committee Minutes of 9th/10th December Meeting
U.S 13:30 Personal Income (November)
– Consumption
– Core PCE
U.S 14:55 Michigan Sentiment (December Final)
U.S 15:00 New Home Sales (November)
written by Adam Solomon
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