GBPEUR/GBPUSD
The Pound declined against all of the 16 most actively traded currencies yesterday, weakening 0.5% versus the Euro and dropping by the same percentage against the U.S Dollar to a low of 1.5918. Neil Mellor, a currency strategist at Bank of New York Mellon, said that “the fiscal side of things is really starting to trouble the market and tipping the balance against Sterling.”
The UK currency secured a firmer tone earlier in the day, amid some evidence of a closing of short positions following the Christmas period. There was also some degree of optimism over near-term retail sales trends but liquidity was still slow, leading to some erratic trading during the course of the day. The Pound hit resistance below $1.61 against the Dollar and there was an initial retreat back towards $1.60 in New York.
Underlying confidence in the UK economy remains weak with persistent fears over the government debt position and this will remain a negative factor for the Pound. The UK currency plunged below 1.11 against the Euro yesterday and renewed concerns of the country’s credit rating saw Sterling trade down through $1.59 versus the Dollar.
The Chancellor of the Exchequer Alistair Darling told lawmakers earlier this month that the UK’s budget deficit will be £611 billion in the four years through March 2013, £5 billion more than previously estimated. Moody’s Investor Services said the day before that the UK’s ratings may “test the Aaa boundaries,” while Standard & Poor’s lowered the outlook on the UK AAA rating to “negative” on May 21st.
Recent economic reports are giving conflicting indications of Britain’s ability to exit the longest recession on record. The Office of National Statistics said on December 23rd that UK services industries contracted in the three months though October, while mortgage lending rose to the highest level in two years last month.
The Bank of England said in November that it will probably assess the effectiveness of the £200 billion quantitative easing program in February and the confidence in the Pound is likely to be fragile leading up to that pivotal announcement. UK stocks were largely unchanged yesterday, after the longest winning streak since September pushed the FTSE 100 Index to the highest level in 15-months.
The FTSE 100 has rebounded 55% since the March 3rd low, as central banks cut interest rates to records lows and governments worldwide committed about $12 trillion to revive the global economy. The index yesterday became the first equity market among the biggest developed economies to recover its loss from Lehman Brothers Holdings Inc’s collapse in September 2008.
EUR/USD
The Dollar was poised for its first monthly gain against the Euro since June before a report that is expected to show that U.S manufacturing expanded in December for a fifth month. The U.S currency drifted weaker against the Euro and a break of resistance close to $1.4410 pushed the Euro to a high of just above $1.4450.
German consumer prices were slightly stronger-than-expected with a provisional 0.7% monthly increase for December. U.S economic data was largely in line with initial estimates, as consumer confidence rose to 52.9 in December, while the latest Case Shiller house price index recorded a 7.3% decline in the year to October.
The Dollar then gained buying support later in the U.S session and strengthened towards $1.4350, after an increase in bond yields to the highest level in five months. The Euro weakened this morning, after Standard & Poor’s warning over the risk of further credit rating downgrades within the Euro-zone, which pushed the single currency towards a low near $1.43.
Data Released 30th December
EU 09:00 M3 / 3 Month Moving Average
U.S 14:45 Chicago PMI (December)
written by Adam Solomon
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