The Pound found support close to $1.6400 against the Dollar yesterday and pushed higher throughout the course of the day, testing levels near $1.66 in New York. The UK currency also rallied above 1.1800 versus the Euro overnight and recorded a fresh yearly high against the U.S Dollar, as global risk appetite continued to improve.
The Nationwide Building Society reported that UK house prices rose for a second consecutive month in June, which helped boost underlying sentiment, adding to signs that the worst of the property slump is over. The average cost of a home in the UK and Wales climbed 0.9% to £156,442, after rising 1.13% in May, despite forecasts of a 0.5% drop.
From a year earlier, house prices fell 9.3%, the smallest annual drop in July 2008, while the Pound also rallied strongly following reports that UK consumer confidence increased to the highest level in 14-months in June. Sentiment has improved as shoppers became more optimistic that the recession is past its worst, despite rising unemployment.
An index of sentiment rose 2 points to a reading of minus 25, the strongest result since April 2008 and the Pound subsequently smashed through the previous high of the year versus the U.S Dollar, rising to a high of $1.6740 overnight. Unemployment claims rose less than expected in May, and business surveys have indicated that the economic slump is starting to ease.
Bank of England officials believe that the credit squeeze threatens to delay a recovery and economic data released yesterday showed that net mortgage lending rose at the slowest pace since records began in 1993. The subdued increase of £0.3 billion for May, followed a £0.9 billion increase the previous month.
There was a modest recovery in mortgage approvals for the month, but underlying weakness in lending will cause significant concerns over the economy and the Organisation for Economic Cooperation and Development warned that further action was required to help strengthen the banking sector. Although the immediate Sterling reaction was limited, the data will pose underlying risks to the Pound, especially if global risk appetite falters.
Confidence is still firm this morning, which has enabled the Pound to push higher against the majority of the 16-most actively traded currencies and the UK currency has broken through key resistance levels versus the U.S Dollar. Rachael Joy, an analyst at Gfk, said in a statement that “confidence still remains fragile as uncertainty about the strength of any recovery and an increase in unemployment all mean that consumers remain wary.”
Four out of five indexes used to compile the confidence report rose on the month, including measures reviewing and predicting personal finances and the general economic situation. The only decline was on the gauge showing the climate for major purchases, which fell four points to minus 26. Claims for jobless benefits rose in May by 39,300, a third less than economists’ had predicted.
The Bank of England kept the key interest rate unchanged at a record low of 0.5% this month and reiterated its program to stoke economic growth by purchasing £125 billion of bonds with newly created money. The Deputy governor of the BoE Charles Bean told lawmakers last week that the worst of the recession may be past and consumer spending has been “more resilient than one might have expected.”
At the same time, the Governor Mervyn King said that he feels “more uncertain now than ever” on the strength of the economic recovery as officials work to resolve the banking system. King affirmed forecasts that the economy won’t return to growth on an annual basis until the second half of 2010. The Pound also found underlying support yesterday, as UK stocks gained for the first time in three days.
EUR/USD
The Euro was initially weaker in Asian trading on Monday, but found solid support just below the $1.4000 level against the U.S currency and pushed back to the $1.41 region during the day. Risk appetite gradually improved through the day, which helped lessen dollar demand and made it easier for the Euro to push higher.
There was also a recovery in the Euro-zone business and consumer confidence indicators, underpinning confidence in the Euro-zone recovery prospects. Immediate fears surrounding the threat of the Baltic State currency devaluations also provided some underlying relief to the Euro and investors will monitor any G8 comments on currencies closely ahead of their summit next week.
There were no major U.S data releases yesterday to help guide financial markets but the Chicago PMI index and consumer confidence data will be watched closely today for further evidence on economic trends. The Dollar is liable to weaken if there is a sharp recovery in these two indices as risk appetite would improve.
Following on from last week, the Pound rallied against the Dollar on Friday, finding support around $1.6400 before improving steadily through the course of the day to challenge resistance levels above $1.6500. The UK currency also rose back towards 1.1750 versus the Euro, as improved economic data in the U.S spurred demand for riskier assets such as stocks priced in Sterling.
The FTSE 100 Index swung between gains and losses throughout the course of last week, as global risk appetite deteriorated and investors returned to the relative security of dollar denominated assets. The benchmark FTSE 100 Index declined 0.6% to 4,252.57 in London and the stock market has decreased 5.6% from June 1st, amid speculation that share prices have outpaced the outlook for earnings growth after the gauge reached 30.7 times its companies earnings.
In the FOMC statement on Wednesday, policy makers doused speculation that it will pump more money into the economy to hold down interest rates. The Pound was able to avoid a test of key technical support in the $1.6200 region and rallied back towards $1.6400 in New York on Thursday, as volatile trading conditions persisted. The UK currency also found key support under 1.1670 against the Euro, as there were no economic factors or official comments to guide the Pound during the course of the day.
The UK currency also fell against the Swiss Franc and the Australian Dollar, as the FTSE 100 index slipped 1.6% in London, the most in three days. The Pound was also unsettled to some extent by concerns surrounding fiscal debt, amid comments from the Bank of England governor Mervyn King on Wednesday, but the impact faded during U.S trading as equity markets rallied.
There will be a much greater chance of a change in sentiment if there is a sustained deterioration in global risk appetite. Confidence held relatively firm in early Europe on Friday and this helped Sterling hold near the $1.6400 level against the Dollar. King said on Wednesday that the U.K’s path out of recession may be a “long, hard slog”.
Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd, said that “the market’s positioned long sterling and lower equities provide a good excuse to take some profit. The Pound hasn’t performed since Mervyn King spoke on Wednesday.” Kings comments have clearly weighed on Sterling sentiment, while the Organisation for Economic Cooperation and Development said that the UK gross domestic product will drop 4.3% this year.
The Pound snapped a two-day decline versus the Dollar on Friday, as the FTSE 100 Index of shares rebounded as much as 1.3%, before erasing earlier gains. The FTSE 350 Banks Index rose as much as 1.7% and the Pound’s correlation with the banking gauge has been 79% or higher this year. Consumer spending in the U.S climbed in May for the first time in three months.
Ian Stannard, a foreign-exchange strategist at BNP Paribas SA, said “we have risk appetite re-emerging, which is sterling positive. There’s still quite a lot of negative sentiment toward the fiscal and debt position of the UK, which has been highlighted this week by policy makers, which has kept sterling depressed on the week.”
The Pound has risen 13% against the Dollar this year, and 11% versus the Euro, as the global financial system shows tentative signs of stabilising. The Pound weakened to a record low of 1.02 versus the Euro on December 30th and reached a 23-year low of $1.3505 against the Dollar on January 23rd. The UK currency fell earlier in the week after Bank of England chief economist Spencer Dale said a weaker currency is making UK assets more attractive to foreign investors.
The Bank of England said on Friday that financial institutions’ losses from the crisis have left them vulnerable to another wave of shocks, including the risk that the economy will remain mired in a recession. “Given their leverage and funding positions, banks in the UK and internationally will remain sensitive to further stocks for some time”, the central bank said in a statement.
UK house prices fell for a thirteenth consecutive month in May, as the average cost of a home in England and Wales fell 0.2% from April to £152,497. BoE policy maker Kate Barker said last week that the property market was still “some way away from normal” and the bank said that financial institutions are vulnerable to more shocks.
Despite the Banks warning that the banking sector will remain fragile and vunerable to external shocks, the Pound managed to avoid further selling pressure. The key factor is that overall risk appetite remained firm which underpinned the Pound and lessened the impact of bank warnings. Simarly, fears over the budget situation have also lost some of their impact for the timebeing.
EUR/USD
The Dollar fell against most of the major currencies on Friday, after China repeated its call for a supernational currency “delinked” from sovereign nations. The U.S currency headed towards its biggest weekly loss against the Euro in four weeks, after the People’s Bank of China said the International Monetary Fund should manage more of members’ foreign exchange reserves.
The Dollar was unable to gain any support during Friday and dopped significantly lower in European trading. There was also an implicit attack on the U.S economic policies, which fuelled speculation over underlying reserve diversification. The comments from China renewed market fears over the underlying threat of a central bank diversification away from the U.S currency and this is an importnant element in undermining dollar confidence during the day.
The Euro challenged levels above $1.4100 against the Dollar on Friday, before consolidationg around $1.4065 by the close of trading. The preliminary German consumer prices data was stronger than expected with a 0.4% rally and this will tend to dampen expectations of a more aggressive ECB stance on monetary policy.
Data Released 29th June
UK 09:30 Consumer Credit / Mortgage Applications (May)
The Pound dropped against the Dollar and the Euro yesterday, as global stocks markets declined for the third day this week and the Bank of England governor Mervyn King said that the UK economic recovery will be slow. The UK currency was unable to rally above the $1.6500 level on Thursday and then weakened steadily through the course of the day with lows around 1.6230.
UK stocks declined for a third day this week, led by banking shares, as the Federal Reserve disappointed investors by refraining from increasing bond purchases. Bank of Ireland Plc slumped 7% in Dublin trading, as the International Monetary Fund warned that the nation’s lenders face losses of as much as $49 billion through 2010.
The benchmark FTSE 100 Index declined 0.6% to 4,252.57 in London and the stock market has decreased 5.6% from June 1st, amid speculation that share prices have outpaced the outlook for earnings growth after the gauge reached 30.7 times its companies earnings. In the FOMC statement on Wednesday, policy makers doused speculation that it will pump more money into the economy to hold down interest rates.
The Pound was able to avoid a test of key technical support in the $1.6200 region and rallied back towards $1.6400 in New York, as volatile trading conditions persisted. The UK currency also found key support under 1.1670 against the Euro, as there were no economic factors or official comments to guide the Pound during the course of the day.
The UK currency also fell against the Swiss Franc and the Australian Dollar, as the FTSE 100 index slipped 1.6% in London, the most in three days. The Pound was also unsettled to some extent by concerns surrounding fiscal debt, amid comments from the Bank of England governor Mervyn King on Wednesday, but the impact faded during U.S trading as equity markets rallied.
There will be a much greater chance of a change in sentiment if there is a sustained deterioration in global risk appetite. Confidence held relatively firm in early Europe on Friday and this helped Sterling hold near the $1.6400 level against the Dollar. King said on Wednesday that the U.K’s path out of recession may be a “long, hard slog”.
Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd, said that “the market’s positioned long sterling and lower equities provide a good excuse to take some profit. The Pound hasn’t performed since Mervyn King spoke on Wednesday.” Kings comments have clearly weighed on Sterling sentiment, while the Organisation for Economic Cooperation and Development said that the UK gross domestic product will drop 4.3% this year.
EUR/USD
The Dollar retained a firm tone in Europe trading on Thursday and tested levels just below $1.3900 in New York, as Euro sentiment was generally weaker, although moves were limited with the Dollar still finding it difficult to gain strong support. Fears over underlying reserve diversification away from the Dollar will continue to undermine sentiment, while expectations persist that interest rates will remain low.
U.S initial jobless claims rose to 627,000 in the latest week from a revised 612,000 previously, while continuing claims rose to near 6.74 million. The unemployment data has been showing signs of improvement and the latest release will cause some fresh anxiety over the labour market situation. Elsewhere, U.S gross domestic product in the first quarter was revised slightly to show a modest improvement.
The Pound strengthened against the Euro yesterday, bouncing back from a low of $1.1630 on Tuesday, after banking stocks rallied and the Organisation for Economic Cooperation and Development raised its forecast for UK economic growth next year. The Pound also gained against the lower-yielding currencies, including the Dollar, as we touched $1.66 prior to the FOMC rate announcement last night.
A report from the Confederation of British Industry showed that UK retail sales recorded a figure of -17 for June, unchanged from the previous month, and the Pound subsequently rallied, as retailers expected a further decline for July. The OECD forecasts were mixed as the 2009 GDP was revised to lower to show an even sharper contraction, although there was an upgrade for the 2010 figure.
According to the OECD, the UK economy will recover “mildly” next year with a previous forecast of a 0.2% contraction. Gross domestic product will drop 4.3% this year, against a March forecast of 3.7%. The Pound’s advance was tempered in New York, after comments from Bank of England officials again had a significant market impact.
The Governor of the BoE Mervyn King and other committee members were very cautious over the economic outlook with King repeating comments that the recovery in the economy was liable to be protracted, while there was a very high degree of uncertainty over the outlook. King again warned over the fiscal position and called for the government to tighten policy if there was any sign of an economic recovery.
In his statement, King said that “there has to be a risk that it will be long, hard slog. I feel more uncertain now than ever. This is not the pattern of a recession coming into recovery that we’ve seen since the 1930s. Having an open mind and not pretending to foresee the future when its so uncertain is important.”
The Pound also found buying support as the FTSE 350 Banks Index rose 1.2% in London, while UK stocks also rose led by a rebound in mining companies. The benchmark FTSE 100 Index also added 1.2%, rising for the first time in three days, as global risk appetite improved. Gavin Friend, a markets strategist at National Australia Bank, said that “if the banking sector is outperforming even while the main index is not, then that can help the Pound.”
The Pound rallied 0.8% against the Euro yesterday, rising to a high of 1.1790, while the UK currency stood predominantly unchanged versus the Dollar at $1.6452, after earlier rising as much as 0.9% to a high of $1.6602. The FTSE 350 Banks Index climbed after dropping 3.5% this week. The correlation between the Pound’s performance and the banks measures is greater than 79% and that is the reason that any short-term momentum in Sterling is continually under threat.
The outlook, together with stresses between the Central Bank and the government will tend to undermine sentiment in Sterling to some extent. The Pound retreated back towards $1.6400 against the Dollar this morning, as the benign FOMC rate announcement and tentative performance in global stocks encouraged investors back to the Dollar.
The Pound extended it advance against the Euro yesterday, after the ECB said that it will lend banks €442 billion for 12-months, as it steps up efforts to unfreeze credit markets. However, the UK currency has fallen back towards 1.1700 this morning and Euro buyers may wish to consider a stop order at 1.16 to protect against a sustained downward move.
In yesterday’s market update, we warned of the inherent downside risks on Sterling/Dollar following the FOMC rate announcement, especially if global risk appetite deteriorates aswell. The Pound looks poised to revisit the trend support at $1.6200 over the coming days and Dollar buyers would be well placed to use a stop order just under this level to protect against a move back towards $1.6000.
The foreign exchange outlook podcast from TorFX. Bringing you up to the minute currency market news.
You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.
Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.
The Pound resumed its downward momentum against the Dollar yesterday and again tested support levels close to $1.6200 and was able to find strong buying support once more near this important technical level, with gains to $1.6500 in New York as the Dollar stumbled. The UK currency declined for a second consecutive day against the Euro, after the Bank of England’s chief economist Spencer Dale said that a weaker Pound is making UK assets more attractive to foreign investors.
Daragh Maher, deputy head of global foreign exchange strategy at Carlyon, said that “the BoE’s comments have been used as an excuse to sell Sterling. The market has been looking for an argument to sell Sterling and Dale’s comments fit the bill.” The Pound had weakened 1.3% against the Euro, falling through significant support at 1.1764, to a low of 1.1630.
Sterling also registered losses versus the Japanese Yen and Swiss Franc, as Dale also said that the exchange rate was a “key channel” that could be utilised to revive economic growth. UK stocks dropped 0.1%, erasing earlier gains, as the FTSE 100 Index of shares fell to 4,230.02 in London, having swung between gains and losses at least nine times during the course of the day.
The tentative swings in risk sentiment will tend to undermine confidence in the Pound and the higher-yielding currencies, encouraging investors to seek the relative security of safe haven assets. The FTSE has rallied 20% from this year’s low on March 3rd and is currently trading at 30.1 times its companies’ earnings, compared with 17 times profit in the week the rally began in March.
The World Bank said on Monday that the global economy is expected to resume growth next year with a 2% expansion, lower than the 2.3% forecast previously. However, the Confederation of British Industry are slightly more optimistic on the prospects for a recovery in the UK economy and that will continue to bolster the Pound, despite a heavy increase in unemployment.
The Pound came under renewed selling pressure on Monday, after the Rightmove Plc, the UK’s largest property website, said that the average cost of a home dipped 0.4% in June, recording the first decline in five months. The UK currency has climbed 3.2% against the Dollar over the past month and looks poised to rally towards the high above $1.66, ahead of the FOMC rate announcement this evening.
The UK economy shrank 1.9% in the first quarter and the ongoing recession may see gross domestic product contract 4.5% in 2009, the most since 1931, according to forecasts by the Centre for Economics and Business Research. The Chancellor Alistair Darling said on April 22nd that the budget deficit this year will reach £175 billion, or 12.4% of GDP, the highest proportion among the Group of 20 nations.
Standard & Poor’s also cut the outlook on UK sovereign debt to “negative” from “stable” on May 21st and there are a number of negative factors that could potentially curtail the Pound’s momentum. In particular, Dollar buyers would be well placed to take advantage of today’s rate, in light of the FOMC interest rate announcement this evening because we could see a move back towards $1.6200 if stocks continue to deteriorate.
EUR/USD
The Euro found good support around $1.3825 against the Dollar yesterday and strengthened impressively through the course of the day, as all eyes focus on the U.S interest rate announcement tonight. The single currency actually recorded the largest advance in six weeks, to a high above $1.41 in New York, after a host of European economic reports raised optimism on the prospects for a recovery.
The PMI manufacturing indices were firmer than expected with the flash index rising to a reading of 42.4, from 40.7 the previous month. The services sector index edged moderately lower, despite expectation of a measured increase, which will be of some concern with fears that improvements in the sector are being driven by inventory adjustment.
The European economy is showing real signs of stabilisation, after shrinking at the fastest pace in at least 15-years in the first quarter. German and French business confidence rose for a third consecutive month in June and the ECB president Jean-Claude Trichet said that the worst of the recession may be over, after policy makers cut rates to a record low and embarked on a policy of buying covered bonds.
The comments from a number of ECB officials were generally supportive of the Euro, with governing council member and Bundesbank President Axel Weber stating that the bank had no more room to cut interest rates. The Central Bank’s one-year refinancing operation will be watched closely on Wednesday and strong demand for funds could undermine the Euro.
The Dollar has declined against the majority of the 16-most actively traded currencies on speculation that the Federal Reserve will temper expectations for an interest rate increase this year, in an attempt to lower borrowing costs. Traders are speculating that that the FOMC will keep the benchmark rate close to zero for the remainder of the year to support a return to economic growth.
The Pound declined against the Dollar yesterday, falling back towards the key support level around $1.6200, as a report from Rightmove Plc showed that UK home sellers lowered their asking prices in June for the first time in five months. Stock market losses sapped demand for riskier assets priced in Sterling and that eroded confidence in the Pound throughout the course of the day.
According to the report, the average cost of a home in Britain dropped 0.4% to £226,436 from May, when it rose by 2.4%, as banks scaled back lending and demanded bigger deposits on purchases. In a separate report from the Centre for Economics and Business Research, services companies will lose more than 300,000 jobs within the next five years, adding to the already escalating unemployment problem.
The Bank of England have recently said that the UK housing market is showing tentative signs of stabilising. However, the governor Mervyn King said last week that tighter lending conditions may hamper an economic recovery from the worst recession in a generation. Unemployment, which rose to the highest level since 1996 in the quarter through April, may also hamper a rebound in property values.
Miles Shipside, commercial director at Rightmove Plc, said in an interview yesterday that “we’re very much bumping along the bottom. Sellers are having to reduce prices to where they’re getting interest, with the pickup in sales activity, there’s a narrowing gap between asking prices and what’s actually being achieved.”
UK house prices fell 5.5% on the year, as mortgage lenders raise the cost of fixed-rate loans and require bigger deposits. The Nationwide Building Society and Lloyds Banking Group Plc this month both increased the cost of their fixed-rate home loans, after a jump in UK swap rates, used by banks as a benchmark for mortgage costs.
The drop in house prices this month follows separate reports last week that showed UK retail sales unexpectedly fell in May, while unemployment increased to the highest level in 12-years. The Pound dropped in light of the damaging economic data and also registered losses, after manufacturers’ export orders declined to lowest level in a decade, reflect the lack of demand from overseas.
Nevertheless, there are still signs of a pick-up in the economy as more than half of UK companies said that the country has reached the bottom of the economic cycle and business confidence rose to the highest level since 2008. Inflation also slowed less than economists’ forecasts in May, while both manufacturing and service industries also improved.
The Pound also weakened against the Japanese Yen and Swiss Franc, as a degree of risk aversion stalked the market. However, the UK currency rallied to the highest level against the Euro this year in London, touching a high of 1.1900, before retracing back towards the trend support at 1.1764 this morning.
UK stocks also dropped for the first time in three days yesterday, to the lowest level since April, as a retreat in crude oil prices weighed on producers. Concerns also grew that the overwhelming rally since March has outpaced expectations for the earnings and the economy. The benchmark FTSE 100 Index of UK shares slid 2.6% on the day, while the MSCI world index of equities also declined.
Daragh Maher, deputy head of global foreign-exchange strategy at Calyon, said that “equity markets have been a bit softer and we have been a modest safe haven bid back. This is favouring the Dollar over Sterling.” The Pound has risen 2.6% against the Dollar over the past month but the UK currency dropped to a low of $1.6250 overnight, after briefly touching a high of $1.6500 yesterday.
Government bonds rose around the globe, while stocks fell, as the World Bank said that the global economy will contract 2.9% this year, up from a previous forecast of 1.7%. The Confederation of British Industry said earlier this month that the UK economy will shrink 0.3% in the second quarter and 0.1% in the third.
The Pound’s performance is almost solely down to the aggressive swings in risk appetite and we can expect to see further downside momentum, particularly against the lower-yielding currencies, if stock market losses worsen. Euro and Dollar buyers may wish to take advantage of the current rate or at least place a stop order in the market to protect against further losses. A good level for stop on Sterling/Dollar would be just under the pivotal $1.6200 level and 1.1600 versus the Euro.
EUR/USD
The Euro dipped to lows around $1.3825 against the Dollar yesterday, as commodity prices continued to decline before a modest stabilisation in New York. The German Ifo sentiment index rose to a reading of 85.9 in June, compared with 84.2 the previous month, maintaining the improvement over the past few months.
Companies were still largely pessimistic over current economic conditions and Ifo officials did not describe the modest improvement as a defining turning point for the economy. That cautious tone of the comment tended to stifle any resurrection in risk appetite and maintained doubts over the prospects for an economic recovery in the Euro-zone.
The Dollar was supported as investors returned to the relative security of safe haven assets, as the World Bank released its latest forecasts for the global economy and was generally downbeat on the chances of a recovery. The U.S currency may continue to may gains in an environment of risk aversion but Wednesday’s Federal Reserve interest rate announcement will be watched closely, amid high uncertainty over the Fed’s guidance on the economy.
According to technical analysts at Citigroup Inc, the Euro will probably extend its decline against the Dollar, as it approaches a major areas of support. The single currency dropped by the most in a week yesterday and the Euro is forming a “head and shoulders” formation, indicating further depreciation if we break through level between $1.3793 and $1.3722.
Following on from last week, the Pound recorded its longest run of weekly advances against the Euro in over four years, bolstered by gains on Thursday, after the Bank of England Governor Mervyn King said that the UK recession may be easing. The UK currency found support close to the $1.6300 level against the Dollar on Friday and rose sharply higher, resisting a further test of support around 1.6200.
As the Dollar came under renewed selling pressure, the Pound pushed to a high above $1.6550, while the UK currency also strengthened towards the 2009 highs near 1.1860 versus the Euro. The Pound has continued to gain support from a relatively firm tone in risk appetite, despite the political unrest in Iran, and a lack of confidence in the major currency alternatives.
There was no significant domestic developments on Friday with confidence in the UK economy still providing underlying support for Sterling, especially with the fundamental lack of confidence in the Euro-zone. The Pound rallied from close to the lowest level in a week against the Dollar, after Mervyn King said in a newspaper interview that policy makers are seeing evidence the economy’s contraction is beginning to “flatten off”.
Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd, said that “King was more upbeat that he has been previously, and that has come as a surprise to the market. It’s a major leap of faith for him. The market is taking it seriously and has gone and bought Sterling.” The Pound rose 0.5% against the Euro to a high of 1.1865, to record the longest stretch of weekly gains since April 2005.
King also said that the UK will “certainly come though” its worst recession in a generation and return to “an ordinary business cycle”. The Bank of England said in London on June 17th that “the risk of a continued sharp contraction” has “receded somewhat”. Unemployment rose in May by less than economists forecast but retail sales unexpectedly declined, recording a 0.6% loss.
In addition, the FTSE 100 Index rose by the most in almost three weeks, boosting demand for the Pound and higher-yielding assets. UK stocks climbed, trimming the first weekly loss in five weeks, as a gauge of mining shares rebounded from the longest losing streak in six months and homebuilders rallied. The benchmark FTSE 100 index climbed 1.5% on Friday, paring the loss for the week to 2.2%.
The Pound has advanced 3.8% against the Euro and 6.7% versus the Dollar over the past month, as evidence builds that the UK economy is through the worst of the recession and investors are tempted back to UK assets. Taylor Wimpey Plc, Britain’s largest homebuilder, said on Thursday that its domestic order book surged 73% from the end of last year, as buyers returned to the housing market.
European Union leaders are seeing signs of a “sustainable economic recovery” and ruled out further stimulus measures. The UK economy shrank 1.9% in the first quarter, and the International Monetary Fund still expects gross domestic product to contract by 4.5% this year, the most since 1931.
Nevertheless, the Pound is performing well against almost all of the 16-most actively traded currencies this morning, as a report from Rightmove Plc showed that UK home sellers lowered asking prices in June for the fist time in five months.
EUR/USD
The Euro found support below $1.3900 against the Dollar on Friday and generally maintained a slightly firmer tone throughout the course of the day, even though it struggled to sustain its early momentum. There were no significant data releases to guide the markets during the day but risk appetite was firmer, which tended to erode Dollar support.
There were also warnings from Standard & Poor’s that California’s debt credit rating would be downgraded, which undermined Dollar sentiment. The Euro advanced towards the pivotal $1.4000 level in New York, amid caution ahead of the Federal Reserve interest rate decision on Wednesday. The focus in the Euro-zone will be the German IFO sentiment index this morning and the most likely outcome is that the index will rise further.
European Central Bank Governing Council member Ewald Nowotny said that the bank is likely to keep interest rates steady at a record low for at least the remainder of the year. The ECB won’t substantially alter its assessment of the economic outlook and “therefore I don’t see a likelihood for rate changes” Nowotny said in an interview in Vienna of Friday.
The foreign exchange outlook podcast from TorFX. Bringing you up to the minute currency market news.
You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.
Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.
The Pound dipped sharply lower against the majors yesterday, briefly falling under 1.1700 versus the Euro, while the UK currency also retested support at $1.62 against the U.S Dollar. Retail sales unexpectedly declined in May for the first time in three months and the Bank of England governor Mervyn King said that any economic recovery is likely to be “protracted”, as banks ration loans.
The report from the Office of National Statistics showed that sales declined 0.6% from the previous month, despite expectations of a more positive 0.3% increase. Store sales also dropped 1.6% from a year earlier and the Pound subsequently declined against all of the 16 most actively traded currencies. Recent economic reports have indicated that the UK recovery from the worst recession since 1979 will be uneven, as unemployment continues to spiral.
Elsewhere, the latest monthly government borrowing data registered a record monthly deficit of £19.9 billion. The latest bank lending data was also weak as lending remained under pressure. The data released yesterday will certainly have some negative impact on the Pound, even if the immediate impact is measured.
The UK currency will also continue to be influenced strongly by swings in risk appetite and Euro and Dollar buyers should take advantage of the current rate, or at the very least consider using a stop order to protect against a sustained downward move.
While recent surveys on manufacturing and services improved, the Bank of England confirmed yesterday that the flow of loans to companies stayed close to the lowest level in nine-years in June. David Tinsley, an economist at National Australia Bank in London, said “today’s retail sales have muddied the waters. We’d agree the growth outlook has improved. But analysis of the past recession suggests extreme caution on the pace of recovery.”
The Pound dropped 1% against the Dollar yesterday, falling to a low of $1.6189, but recovered later in the session as global risk appetite improved. The UK currency also fell by about the same against the Euro but by the close of trading last night, the Pound had recovered to 1.1750. Over the course of the year, retail sales dropped 1.1%, the most since 1988.
The UK’s economic recovery may be retrained due to the bank’s unwillingness to free up lending conditions. New loans approved remained at weak levels amid “subdued demand” last month, while gross mortgage lending fell 2% in May from the previous month, according to the report from the Council of Mortgage Lenders.
In a statement to the Mansion House earlier this week, the BoE governor Mervyn King, said that “banks’ ability to finance a sustained recovery remains impaired by low level of equity capital”. In stark contrast, the Chancellor Alistair Darling maintained that he’s “confidence there will be a sustained recovery”, suggesting there are divisions emerging between the Bank of England and the Treasury.
The Pound bounced back later in the day, as UK stocks erased earlier losses, after manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months. The benchmark FTSE 100 Index added 0.4% on the day, after falling as much as 0.9% in London. Vodafone Plc and Standard Chartered Plc led the gains.
According to a gauge of technical analysis, the Pound may drop to the lowest level in more than a week versus the Dollar, if it closes below its 20-day moving average. The UK currency may fall to $1.6000 against the Dollar, weakest level since June 9th, after sliding through the $1.6223 level yesterday. The Pound will fall to 1.6100 by year-end, amid concerns about the UK debt position.
EUR/USD
The Euro pushed higher against the Dollar in early trading yesterday, but continued to face tough resistance around $1.4000. The single currency edged weaker ahead of the opening in New York, although the ranges were relatively narrow with the Dollar unable to sustain its momentum, due to a rally in global stock markets.
The U.S Philadelphia Fed Index rose to a reading of -2.2 in June, from -22.6 the previous month, which was much stronger than initial forecasts and the highest reading for nine months.The tone of the report inspired confidence in financial markets and boosted confidence of an economic rebound, especially as the New York manufacturing index had registered a monthly fall.
Elsewhere, initial jobless claims edged slightly higher to 608,000 in the last week, from 605,000 previously, while there was a decline in continuing claims, which will boost confidence that the labour market will stabilise. Risk appetite improved following the U.S data and the Dollar weakened back towards $1.4000 by the close of trading last night.
by Adam Solomon
Sterling / Euro and US Dollar
The Pound made significant gains against a basket of currencies yesterday, rising through $1.56 against the Dollar to the highest level in five-months, while the UK currency also re-visited the resistance level at 1.20 versus the Euro. The Australian Dollar has declined heavily against the Pound and U.S... Read more
Daily Exchange Rate Forecast – July 28th
by Adam Solomon
Sterling / Euro and US Dollar
The Pound rallied to a fresh five-month high against the U.S Dollar this morning, while the UK currency also made strong gains versus the majority of the 16 most actively traded currencies. Sterling hit a high of 1.5575 in London, as global risk appetite continues to improve, diminishing... Read more
Turkish Lira Exchange Rate Forecast
by Jon Beddell
Foreign Currency Market Update – GBP / TRY Update
The much awaited European bank stress tests were completed on Friday. All major banks passed the tests including the four major UK banks that took part. Also giving the pound a boost on Friday was a strong second quarter GDP figure. Growth... Read more
New Zealand Dollar Exchange Rate Forecast
by Jon Beddell
Foreign Currency Market Update – GBP / NZD Update
The pound bounced by seven cents from July 13th to July 19th, but gave back those gains last week, making a new four week low on Thursday even as UK retail sales data for June beat expectations. Things looked a little better on Friday.... Read more
Registered Company Name: Tor Currency Exchange Limited. Registered in England & Wales, Number: 5193147.
Tor Currency Exchange Ltd is authorised by the Financial Services Authority under the Payment Service Regulations 2009
(FRN 517320) for the provision of payment services.
HM Revenue & Customs Certificate of Registration for Money Laundering Regulation, Number: 12191606.
