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.
Following on from last week, the Pound declined against the Euro, 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, falling to a low of $1.5922.
UK gross domestic product for the third quarter was revised marinally 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.
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 regards 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.
Prior to the Christmas break, the Pound rose moderately against the U.S Dollar, amid signs that the global economic recovery is gathering momentum and stock markets advanced, reducing the allure of dollar denominated assets. The FTSE 100 Index climbed for a fifth straight day, becoming the first equity market among the biggest developed economic to recover its loss from Lehman Brothers Holdings Inc’s collapse.
The FTSE 100 Index rose 0.6%, which would be the highest closing position since September 12, 2008, the last session before Lehman filed the world’s biggest bankruptcy. The Standard & Poor’s 500 Index in the U.S and Japan’s Nikkei 225 stock average must rally 11% and 15% to rebound from their lowest point.
Elsewhere, the Confederation of British Industry raised its 2010 economic growth forecast for the UK three days ago and said that the Bank of England may pause its bond purchasing program in February. Brian Kim, a currency strategist at UBS AG, said “sterling can strengthen into the upcoming UK elections. But caution thereafter as we could see sterling weaken due to fiscal spending cut-backs.”
According to an article in the Daily Telegraph, citing a report from the Centre for Economics and Business Research, the Pound may fall below parity with the Euro because of the state of the country’s finances and concern about the government’s policies. Ratings companies are “looking for an excuse” to lower the UK government’s AAA credit rating, after Greece had its rating cut.
EUR/USD
The Dollar traded close to the highest level in more than three months against the Euro last week, 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.
The Dollar was unable to make any significant ground against the Euro yesterday and weakened to lows beyond $1.44, before consolidating around $1.4385 by the close of trading last night. Trading conditions were inevitably subdued with much of Europe still on holiday following the Christmas break. There will be expectations of a further improvement in consumer confidence last month, which would tend to provide some support for the Dollar.
The technical situation is deteriorating markedly following the break of 1.7110. We’ve been monitoring this level for the last two months, using it as our key reference point. The break below there has been accompanied by strong momentum, making it even more significant. We advise clients to consider covering any CAD requirement sooner rather than later to avoid further downside.
Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.
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
In the approach to Christmas, Sterling remains under pressure – challenging long-term key support at $1.6000 this morning against the dollar, and trading within an extremely tight range against the Euro.
Gross Domestic Product data (GDP) released this morning confirmed that the U.K economy shrank by less than previously forecasted during Q3 – bringing the longest recession on record closer to ending.
The report issued by the Office of National Statistics confirmed that GDP for the U.K fell 0.2% against a previously anticipated 0.3% drop.
The Confederation of British Industry (CBI) raised its 2010 economic growth forecast yesterday, and suggested that the Bank of England could pause its bond-purchase plan in February. Policy makers have pledged to print £200 billion GBP of new money to help increase spending and shake off Britain’s longest recession on record. The U.K economy has contracted by 5.1% in total compared against figures released this time last year.
The Royal Institution of Chartered Surveyors have forecasted this morning that house prices in the U.K could potentially rise as much as 2% during 2010.
In the Euro-Zone, A report from the European Commission released yesterday suggested that the economic recovery in the Euro-Zone region is gathering momentum but at a slow pace.
Markets will be monitoring closely the results of final GDP figures for the United States, due to be released into the market this afternoon at 13:30.
EUR/USD
The euro remains under pressure versus the dollar this morning, starting the day around $1.4300 level on interbank as the dollar continues to be supported by speculation that the U.S economy may be recovering faster than originally anticipated.
This latest recovery could however, prove to be purely technical – There is speculation in the markets that even though the Federal Reserve might be contemplating an exit strategy, the current interest rate differential is unlikely to provide the dollar with a sufficient yield advantage for the currency to maintain it’s upward momentum.
Whilst trading around three-month highs versus the euro, the dollar has also reached two-month highs versus the yen overnight. These gains were fuelled by growing speculation that the Bank of Japan will take further steps to ease monetary policy.
As well as broad based dollar strength, the yen has reacted negatively to recent comments made by the Governor of the Bank of Japan, who confirmed yesterday that policy makers are ready to act “promptly and boldly” to fight deflation.
Following on from last week, Sterling remains under pressure against the dollar, weighed down by poor public finance figures released on Friday, and the general bounce in the USD. The Pound is currently trading within a tight range against the Euro, however interbank seems to be holding above 1.1200 (0.8912) for the time being.
The week ahead is due to be a key week for sterling, with final Q3 Gross Domestic Product data (GDP) due for release tomorrow morning. Bank of England minutes are also due for release on Wednesday morning at 09:30. Market analysts will be watching these minutes closely for any significant comments, and/or any indication of future policy.
Last week, the Confederation of British Industry (CBI) raised its 2010 economic growth forecast and suggested that the Bank of England may pause its bond-purchase plan in February as policy makers prepare to raise interest rates.
Gross Domestic Product (GDP) data is anticipated to increase by 1.2% next year after contracting 4.5% percent in 2009. The CBI previously forecasted an expansion of 0.9%. The group are predicting that the bank could raise the benchmark interest rate in the U.K from 0.5% in the second quarter to reach 2% by the end of 2010.
Ian McCafferty, the Chief Economic Adviser for the CBI – confirmed in a recent statement "Growth is very subdued and fragile, particularly in the first half," – he went on to suggest that we could see a "pause" in the asset purchase program.
Prime Minister, Gordon Brown is desperately attempting to resuscitate the economy and rebuild support in time for an election which he must call by June 2010. The forecasts currently suggest that economic growth will resume again with an expected 0.5% GDP increase during the current quarter, marking an end to Britain’s longest recession on record. Recovery will be aided by companies rebuilding stocks to meet a rebound in world growth and as exporters benefit from a weaker pound.
The pound is anticipated to drop further against the dollar and the Euro in the run-up to the election as uncertainty surrounding the election could potentially leave the Pound on the back foot as a currency.
EUR/USD
The dollar dipped against the euro during early morning trading but remains within easy reach of $1.4262 (3-month low) seen during the weekend. A more positive outlook for the U.S economy on the back of recent stronger than anticipated retail sales and jobs numbers, concerns over the debt burdens of Greece and other euro zone countries, and lingering worries about Dubai are also lending support to the dollar.
There is little in the way of fresh data to set direction for currencies today, with FX markets likely to take their direction from stocks. There are, however, some key events over the course of the week ahead, including the release of some leading business and consumer confidence surveys from the Euro-zone, US personal income and spending figures for November.
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 opened this morning above 1.1200 on interbank, reaching the highest level since November 19th, however has deteriorated slightly against the dollar trading to a low of 1.6113 during trading this morning.
Data released yesterday morning confirmed that U.K retail sales fell unexpectedly in November (the first monthly drop since May) and U.K consumer confidence also fell for a second month in December -raising further concerns about the strength of an economic recovery in the U.K. Retail sales volumes were down by 0.3% against a previously anticipated 0.4% rise. A separate survey by the Confederation of British Industry (CBI) has confirmed that retailers expect sales to weaken further in January.
Official figures from the Office of National Statistics have confirmed that U.K public sector net borrowing hit a record high of £20.3bn during November – this level was lower than initial forecasts – but still remained at the highest level since records began in 1993. Public sector net debt as a percentage of overall UK economic output now stood at 60.2%. Analysts confirmed that the overall level of public borrowing for this financial year was on track to hit the £178bn previously forecasted by the government.
Q3 Gross Domestic Product Data has confirmed that the Irish economy saw modest growth in the third quarter of this year. Figures just released by the government’s statistics agency showed gross domestic product rose by 0.3% compared with the quarter before. The figure indicates the country has now pulled out of what was one of Europe’s worst recessions.
Business Confidence in Germany has increased to the highest level in more than a year for the month of December. Recent reports have painted a mixed picture about Germany’s recovery. While the ZEW institute said four days ago economists are tempering optimism with regards to the outlook. Bundesbank this month raised its forecast for 2010 growth and Volkswagen AG posted the strongest monthly sales gains this year for the month of November.
Data released this morning confirmed that French business confidence fell in December to 89 from a revised 90 during the month of November. This is the first drop nine months on concern that fading government stimulus measures may slow the economy’s recovery from its worst slump in six decades.
EUR/USD
The Euro is attempting to claw back some of the sharp losses against the dollar in the wake of the positive market reaction to Wednesday’s FOMC statement. It has recovered from 2-month lows of $1.4305 to begin the morning around $1.436 but the currency remains vulnerable as traders continue to look to cover dollar short positions ahead of year end.
Alongside the Federal Reserves statement, the Euro is also being undermined by a spike in risk aversion in respect of recent developments in Dubai and Greece as well as underlying concerns about the outlook for the global economy.
Elsewhere overnight, the Bank of Japan announced that it was leaving policy unchanged as it concluded its monthly policy meeting. This was in line with market expectations and in terms of policy meetings brings to a close a year that has seen extraordinary moves by global central banks in an effort to restore confidence and stability to the world economy.
The Pound rallied strongly against the U.S Dollar yesterday, rising 0.7% in London to a high of $1.6409, while the UK currency also 0.6% versus the Euro, breaching above 1.12 for the first time since November 19th. Sterling also made gains versus the majority of the 16-most actively traded currencies, following reports that UK unemployment unexpectedly fell for the first time since February 2008.
According to the report from the Office of National Statistics, claims for jobless benefits declined by 6,300 in November to 1.63 million. Economists had predicted an increase of 12,500, while the number of people seeking work in the three months through October rose 21,000 to 2.49 million, the smallest gains in 17-months.
The UK economy has lost more than 600,000 jobs since the recession began, with people under the age of 24 most affected. Howard Archer, chief European economist at HIS Global Insight in London, said that the figures were “a real shot in the arm. It’s very encouraging. However, I don’t think it’s an end for the rise in unemployment, which may continue until the end of the next year.”
The Pound rose strongly after the report and the UK currency is approaching the 38.2% Fibonacci retracement level at 1.1270 versus the Euro, an area where we can expect some resistance. The number of claims rose by 53,000 to 28.9 million in the quarter through October, the biggest increase for 17-months.
The claimant count was unchanged at 5% and unemployment has risen less than expected, as companies froze pay and cut working hours to retain skilled labour needed once the economy returns to growth. At 7.9% the UK unemployment rate is lower than the 10% in the U.S and 9.8% in the Euro-zone and many economists expect the jobless rate to peak below the postwar high of 11.9% in 1984.
The Pound also received a boost against the U.S Dollar yesterday, as UK stocks advanced 0.3% in London, led by homebuilders, after Citigroup Inc advised its clients to buy shares. The FTSE 100 Index has now rebounded 51% since the March 3rd low and is poised to record its biggest annual gains since 1997, as central banks cut interest rates to record lows and pumped roughly $12 trillion into the economy.
The UK currency continued to gain momentum yesterday, despite comments from Bank of England policy maker David Miles, who said that it’s “natural” for officials to consider changes to the deposit rate. Miles was the sole voice for a greater increase in bond purchases last month, as the majority voted for a £25 billion increase.
Policy makers discussed lowering the deposit rate in November, saying that a reduction could “ease monetary conditions further.” The Central Bank elected to refrain from making any such announcement at its December 10th meeting, when policy makers stuck to their plan to buy as much as £200 billion of bonds with newly created money.
EUR/USD
The Dollar lost some momentum against the Euro yesterday, falling from the strongest level since October, amid speculation that the Federal Reserve may reiterate its pledge to keep the target lending rate at virtually zero for an extended period. The U.S currency traded at $1.4579 against the Euro, after reaching the strongest level since October 2nd.
U.S consumer prices increased 0.4% last month, led by higher prices for food and medical care, stoking inflationary pressures and putting pressure on the Fed to exit ultra-loose policy measures. The core index that excludes food and energy was unexpectedly unchanged for the first time since December 2008.
The Euro declined further against Sterling yesterday, amid concerns over the debt position among ECB member states, while ECB governing council member Ewald Nowotny said that he sees no reason to raise interest rates in the first half of 2010. Nowotny said in an interview in Vienna that “our interest rate decision is to be seen in connection with our price stability goal and in this context I do not see major threats for stability in the near future.”
Goldman Sachs Group Inc recommended its clients buy the Euro against the Dollar, predicting that the single currency will reach $1.55 in three months, amid a weak U.S economic recovery. The Dollar reached a two month high of $1.4504 on Tuesday, as speculation gathered momentum that Greece struggled to address concerns that it isn’t doing enough to reduce its debt.
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.
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