FX131 Foreign Exchange Daily Insight - The Pound declines against the majors
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.
FX130 Foreign Exchange Daily Insight - The Pound looks poised for further declines amid concerns of a downgrade in the UK
GBPEUR/GBPUSD
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.
FX128 Foreign Exchange Daily Insight - The Pound declines against the majors, amid concerns over credit rating
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
FX127 Foreign Exchange Daily Insight - Sterling continues to remain under pressure
GBPEUR/GBPUSD
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.
FX126 Foreign Exchange Daily Insight - Sterling remains under pressure against the dollar
GBPEUR/GBPUSD
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.
FX124 Foreign Exchange Daily Insight - The Pound opened this morning above 1.1200 on interbank
GBPEUR/GBPUSD
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.
FX123 Foreign Exchange Daily Insight - The Pound Rallies Against The Majors
GBPEUR/GBPUSD
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.
FX119 Foreign Exchange Daily Insight - The Pound rallies against the Euro, after UK inflation accelerates
GBPEUR/GBPUSD
The Pound rallied strongly against the Euro yesterday, rising to a high of 1.1188 in London, while the UK currency also made gains versus a basket of currencies, after UK inflation accelerated at the fastest pace in six months in November. Consumer Prices increased 1.9% year-on-year last month, compared to 1.5% in October, driven by fuel and transport costs.
According to the Chancellor Alistair Darling last week, the UK inflation rate will rise next year to about 3%, close to the government's upper limit, before dropping again. The Bank of England has maintained fiscal stimulus on its £200 billion bond purchasing plan, as it tries to get the rate to the 2% medium term goal and stave off the threat of deflation.
James Knightly, an economist at ING Financial Markets, said "the upside is going to intensify over the next couple of months. There is a risk that we may get a rate over 3% by January. What would concern the BoE is if market expectations of inflation and household surveys rose and that could make them tighten policy quicker."
The prospect of higher inflation becoming entrenched in the broader economy may be supportive to Sterling in the medium-term, as speculation mounts that the Bank of England will have to raise interest rates from the current record low of 0.5%. The Pound strengthened 1% in value against the Euro yesterday but the UK currency may struggle to hold on to recent gains, amid the release of the monthly unemployment numbers this morning.
Geoffrey Yu, a foreign-exchange strategist at UBS AG, said that "inflation may go above the Bank of England's target in the short-term, helping the Pound. Still, it doesn't mean that the BoE will be raising interest rates straight away." Elsewhere, the Pound also found buying support yesterday, after a gauge of UK house prices rose to a three-year high in November.
The report from the Royal Institution of Chartered Surveyors showed that the number of real-estate agents saying that prices increased exceeded those reporting declines by 35 percentage points last month. The UK property market is recovering from its slump, as banks provide more mortgages and the economy shows signs of growth.
The Bank of England's chief economist Spencer Dale said on Monday that low interest rates are helping consumers manage their debt and ward off unemployment. Claims for jobless benefits increased the least in 18 months last month but the UK has lost 600,000 jobs since the start of the recession, taking the unemployment rate to 7.8%.
Another member of the Central Bank's monetary policy committee Kate Barker expressed concerns over increasing quantitative easing any further. In an interview yesterday, Barker said that "there are reasons to think you wouldn't want asset prices to go up too far. For me, there's a bit of caution about how much further I'd like to take the policy. Not that asset prices are far out of line."
Barker also confirmed that policy makers are monitoring the impact of £200 billion of asset purchases on an economy that may only be just emerging from the recession. While she said that 'the quantitative easing program has been "positive" for asset prices, its has been less potent than she expected for the economy and it may take more than six quarters to claw back the output lost to the slump.'
The focus today will fall on the claimant count and average earnings data in the UK and the report is expected to show that jobless claims rose to 13,300 in November. The Pound may also come under pressure, following a statement from Bank of England policy maker David Miles, who voted for a more aggressive increase in bond purchases last month.
EUR/USD
The Dollar rallied to the highest level in 2-months versus the Euro yesterday, after a report showed that U.S industrial production rose above economists' forecasts last month and the Federal Reserve started a two-day meeting. Output in factories climbed 0.8% in November, the most in three months, as improving global sales encouraged companies to ramp up assembly lines.
Elsewhere, U.S producer prices also increased beyond initial estimates, led by a jump in fuel costs, increasing the prospect that the Federal Reserve will be forced to raise interest rates, as the economic recovery gathers momentum. Policy makers expect inflation to remain "subdued" in the coming months, allowing them to keep borrowing costs at a record low.
The Euro declined against the Pound and the Dollar yesterday, as Greece struggled to address concerns that it isn't doing enough to reduce its debt and Austria nationalised Hypo AlpeAdria Bank International AG. The Euro declined 0.6% against the Dollar to $1.4566 in New York, the lowest level since October 2nd.
The Euro also came under selling pressure, after reports in Germany showed that investor confidence declined for a third straight month in December. The ZEW Centre for European Economic Research index for investor and analyst expectations slipped to a reading of 50.4, from 51.1 in November, as investors became more "realistic" about the strength of the recovery.
FX118 Foreign Exchange Daily Insight - The Pound rallies against the Dollar, as risk appetite improves
GBPEUR/GBPUSD
The Pound remained largely unchanged against the Dollar yesterday, while the UK currency rose modestly above 1.11 versus the Euro, despite concerns that a slowdown in the property market will delay an economic recovery. According to a report from Rightmove Plc, the revival in housing may stall next year, as the supply of homes increase because of forced sales.
The UK currency fell after the report, amid speculation that the decline in housing may prompt the Bank of England to maintain its quantitative easing program. Rightmove Plc reported that average asking prices will stagnate in 2010, after rising roughly 2% this year. Prices fell 2.2% this month to an average of £221,463, and may drop again in January.
Banks may show less patience to customers who are late on their mortgage payments after the General Election, which the Prime Minister Gordon Brown must call by June 2010. Rightmove Plc also said that a shortage of properties on the market has helped to stoke prices this year and erased some of the losses in values caused by the recession.
The Pound fell just 0.1% against the Dollar to $1.6229 in London, while the UK currency also lost 0.3% versus the Euro. Derek Halfpenny, European Head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd, said "we're pretty bearish on the Pound and think it's heading lower. Britain's currency will weaken to $1.50 and 1.0526 versus the Euro in the next six months."
The Pound recovered earlier losses yesterday, amid reports that Abu Dhabi pledged $10 billion to bail out Dubai World, sending global stocks rocketing higher, as investor concern eased that some of Britain's biggest bank will lose billions on loans to the region. The state holding company will use part of the money to meet its obligations, including $4.1 billion required to pay an Islamic bond maturing yesterday for the real-estate unit Nakheel PJSC.
UK stocks subsequently climbed, led by financial shares, as the FTSE 350 Banks Index advanced 2.8% in London. Standard Chartered Plc, the UK bank that receives most of its profit in emerging markets, rallied 3.1%. London Stock Exchange Group Plc, whose largest shareholder is Borse Dubai Ltd, jumped 8.1%, as the FTSE 100 Index rose for a third straight day.
The index has rebounded 51% since the March 3rd low and is poised for its biggest annual gain since 1997, as central banks around the world cut interest rates to record lows and governments embarked on emergency stimulus measures, committing about $12 trillion to revive the global economy. The news that Abu Dhabi has provided financial aid to Dubai has sent stocks rising higher, creating appetite for more riskier assets.
Jeremy Stretch, a senior currency strategist at Rabobank International in London, said "the news out of Dubai has taken some of the negativity about sterling that we were seeing last week off the agenda. There had been concerns about the UK banking sector and potential losses in the region."
The Bank of England's quarterly bulletin was published yesterday and policy makers see that the recovery from the worst recession on record is well under way. Additional stimulus measures and credit conditions are resurrecting the economy from the financial crisis, while record low interest rates have made borrowing more affordable, helping UK consumers maintain debt repayments.
Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Group Plc, said that the "the market is pretty thin, and sterling is being driven by the ebb and flow of corporate supply and demand. The Pound's move today is technically driven, the two level to watch are 1.1135, the low from December 11th, and today's high of 1.1050. A break of either level may provoke a decent move."
EUR/USD
The Euro rallied against the U.S Dollar yesterday, gaining 0.2% on the day to a high of $1.4637, after falling to the lowest level since October 5th on Friday. Investor concern eased after reports filtered though that Abu Dhabi pledged to bail out Dubai World and Europe's biggest banks won't be forced to write down loans to the state-owned company.
The Euro remained resilient despite news that the outlook for Spain's AA+ debt rating was cut to "negative" from "stable" by Standard & Poor's last week. Greece's credit was reduced one step to BBB+ by Fitch Ratings, while Portugal's outlook was also revised to "negative" from "stable". The Greek Prime Minister George Papandreou may outline structural reforms and at cutting of the nation's budget deficit, while ECB member Lucas Papademos said that the fiscal situation is "extremely serious".
Michael Hart, a currency strategist at Citigroup Inc, said that "Dollar strengthening may extend somewhat further against the Euro, as concerns over fiscal solvency in some euro-zone member countries dominate market focus." European industrial production also retreated 0.6% in the month of October, while a report this morning is expected to show that German investor confidence also fell last month.
Data Released 15th December
U.K 00:01 Rightmove House Prices (December)
U.K 09:30 DCLG House Price Index (October)
U.K 00:30 Consumer Price Index (November)
- RPI
GER 10:00 ZEW Index (December)
U.S 13:30 NY Fed - Empire State Manufacturing Index (December)
U.S 13:30 Producer Price Index (November)
U.S 14:00 TICS Capital Inflows (October)
U.S 14:15 Industrial Production (November)
- Capacity Utilisation
U.S 18:00 NAHB House Builders Statement (December)
FX116 Foreign Exchange Daily Insight - The Pound declines against the Dollar, amid speculation of U.S rate increase
GBPEUR/GBPUSD
Following on from last week, the Pound declined almost 1% against the Euro on the week, falling to a low of 1.0996 in London, while the UK currency also fell to a one-month low versus the U.S Dollar, after Moody's Investors Services described the UK as weaker than top rated countries like Germany and France. The Pound fell to a low of $1.6199, as global stocks deteriorated, boosting demand for safe haven assets.
The cost of protecting UK debt from default was equivalent to that of Portugal, which is rated Aa2 by Moody's, it's third highest grade. Mark Schofield, head of interest rate strategy at Citigroup Inc, said that "the UK's fundamentals are dismal and don't support the ratings. Only if some pretty draconian fiscal measures are in place will the UK keep hold of its Aaa rating."
Moody's said that its top debt ratings on the U.S and the UK may be at risk and "test Aaa boundaries" because their public finances are worsening the wake of the worst financial crisis since the Great Depression. The Pound subsequently declined against all of the 16-most actively traded currencies, and continued the downward momentum after the Chancellor's pre-budget report.
The Pound extended its decline against the majors, amid reports that UK manufacturing unexpectedly slowed in October. A report from the Office of National Statistics showed that factor output was unchanged, after gaining 1.5% in September, a sign that the economy is struggling to shake off the effects of the longest recession ever recorded.
Production fell 0.9% in the third quarter, revised down from 0.8% in the preliminary estimates. The revision will have a negative impact on gross domestic product, which showed that the UK economy contracted 0.3% in the three months through September, the sixth quarter of contraction, making this the longest recession since records began in 1955.
In the pre-budget report, the Chancellor announced a slightly higher budget deficit forecast for the current fiscal year of £178 billion, with very little change expected for next year. Darling also proposed a tax on banking sector bonuses, but little in the way of fresh ideas to curb near-term borrowing levels, as labour market taxes were raised slightly from 2011. There will be inherent fears that no significant action will be taken before the general election, which must be held by June 2010.
In an environment dominated by risk sentiment, market confidence in the UK debt situation will deteriorate further and there is certainly a risk that Sterling may decline further against the U.S Dollar, as investors retreat to the security of save haven assets. The UK currency recovered some losses against the Euro on Friday, rising to a high of 1.1120 in London, after the Bank of England voted against additional stimulus measures.
Policy makers, led by the governor Mervyn King, kept the benchmark lending rate at a record low of 0.5% and held the asset purchase plan at £200 billion, as officials seek to ensure the economy's recovery from the longest recession on record. Lee Hardman, a foreign exchange strategist at Bank of Tokyo Mitsubishi UFJ Ltd, said that "sterling may depreciate towards $1.50 against the Dollar and 1.0820 versus the Euro over the next six months."
Policy makers said in November that the most "natural" time to assess the quantitative easing policy will be in February and the decision last week was widely anticipated. As a result, the Pound remained largely unchanged after the announcement, but the UK currency continued to lose ground against the higher-yielding currencies, including the Australian and New Zealand Dollar.
The Pound rallied against the majors after the announcement, trading back towards $1.63 versus the U.S Dollar. The governor Mervyn King, said last month that he has an "open mind" about additional stimulus measures and won't risk withdrawing bond purchases too soon. The BoE have now spent £187 billion of newly created money on bonds, with the bulk of the purchases in gilts.
Ian Stannard, a foreign exchange strategist at BNP Paribas SA, said last week that "sterling is putting in a pretty resilient performance. The only thing supporting sterling at the moment is the fact that inflation expectations are holding up. The outlook for sterling over the medium term remains negative." Euro and Dollar buyers may wish to consider taking advantage of the Pound's resilience in the near-to-medium term or place a stop order in the market to protect against a downward move.
The Pound recorded its fourth straight weekly decline against the U.S Dollar, amid concerns that the UK's budget deficit will keep expanding, as the government spends more money it doesn't have trying to shore up the economy. Investors are betting that the UK will continue to decline, as the economy trails its counterparts in recovery from the recession.
EUR/USD
The Dollar advanced to another one-month high against the Euro yesterday, as risk aversion stalked the market, following the report from Moody's that government deficits may force a downgrade in the U.S credit rating. Richard Franulovich, a senior currency strategist at Westpac Banking Corp, said "risk aversion's rippling through, giving the Dollar a boost."
The U.S currency rallied 0.5% against the Euro to a high of $1.4724 in New York, the strongest level since November 4th. German industrial production unexpectedly fell for the first time in three months in October, led by a drop in export demand. Output decreased 1.8% from September, when it advanced 3.1% and Germany's recovery from the worst recession in a generation may slow, as a stronger Euro weighs on export demand.
According to Andrew Chaveriat, a technical analyst at BNP Paribas SA, the Euro may continue to drop towards its 2008 low against the U.S Dollar, falling below support $1.4625. "Euro-dollar is in position to have completed its March rally. A drop below $1.4625 would confirm a major top is in place that euro-dollar is at the early stages of a long-term, multi-month decline potentially re-testing or breaking the $1.2330 October 2008 cycle low."
The Dollar remained largely unchanged against the Euro towards the end of the week, trading at $1.4726 in New York, as U.S jobless claims fell to a nine month low, encouraging demand for higher-yielding assets. U.S stocks rose for a second day, as the average number of unemployment claims over the past month fell to a one-year low and the U.S trade deficit unexpectedly shrank.
The gap in trade shrank 7.6% to $32.9 billion, from a revised $35.7 billion in September, as a rebound in global growth combined with a weaker Dollar pushed up exports for the sixth consecutive month. Manufacturing in the U.S expanded in November for a fourth month and factories in China stepped up production to the fastest pace in five years.
A technical report from Commerzbank AG shows that the Euro may decline further against the U.S Dollar, should the single currency break through the Fibonacci retracement level from its $1.5144 high. The Euro encountered resistance at the 38.2% retracement level and a break below $1.4625 may see the single currency fall towards the October low at $1.4480.
The Dollar is also gaining amid speculation that the currencies of major U.S trading partners, as gains in retail sales and consumer confidence increased speculation that the Fed will raise borrowing costs next year. The Federal Reserve meets this week for the final time this year but no changes are expected in monetary policy.
FX113 Foreign Exchange Daily Insight - The Pound rallies against majors, as the BoE holds bond purchases at £200 billion
GBPEUR/GBPUSD
The Pound declined to the lowest level in over a month against the U.S Dollar on Wednesday, dropping to a low of $1.6215, while the UK currency unexpectedly rallied against the Euro for the first time in three days. In the pre-budget report, the Chancellor announced a slightly higher budget deficit forecast for the current fiscal year of £178 billion, with very little change expected for next year.
Darling also proposed a tax on banking sector bonuses, but little in the way of fresh ideas to curb near-term borrowing levels, as labour market taxes were raised slightly from 2011. There will be inherent fears that no significant action will be taken before the general election, which must be held by June 2010.
In an environment dominated by risk sentiment, market confidence in the UK debt situation will deteriorate further and there is certainly a risk that Sterling may decline further against the U.S Dollar, as investors retreat to the security of safe haven assets. The UK currency recovered some losses yesterday, as Sterling snapped a five-day decline against the Dollar, following the Bank of England interest rate announcement.
Policy makers, led by the governor Mervyn King, kept the benchmark lending rate at a record low of 0.5% and held the asset purchase plan at £200 billion, as officials seek to ensure the economy's recovery from the longest recession on record. Lee Hardman, a foreign exchange strategist at Bank of Tokyo Mitsubishi UFJ Ltd, said that "sterling may depreciate towards $1.50 against the Dollar and 1.0820 versus the Euro over the next six months."
Policy makers said in November that the most "natural" time to assess the quantitative easing policy will be in February and the decision yesterday was widely anticipated. As a result, the Pound remained largely unchanged after the announcement, but the UK currency continued to lose ground against the higher-yielding currencies, including the Australian and New Zealand Dollar.
The Monetary Policy Committee are prepared to wait for the latest economic forecasts and will wait for more evidence on the strength of the recovery before committing to further bond purchases. Alan Clarke, an economist at BNP Paribas SA, said "they should do more quantitative easing, but they probably won't. They'll probably pause. The first interest rate hike is a long, long way off."
The Pound rallied against the majors after the announcement, trading back towards $1.63 versus the U.S Dollar. The governor Mervyn King, said last month that he has an "open mind" about additional stimulus measures and won't risk withdrawing bond purchases too soon. The BoE have now spent £187 billion of newly created money on bonds, with the bulk of the purchases in gilts.
The Chancellor Alistair Darling predicted yesterday that the UK economy will expand as much as 1.5% next year, after contracting 4.75% in 2009. Some economic indicators already suggest that the recession is over, as service sector growth stayed close to a two-year high in November, while unemployment claims rose at the slowest pace in 18-months.
Ian Stannard, a foreign exchange strategist at BNP Paribas SA, said yesterday that "sterling is putting in a pretty resilient performance. The only thing supporting sterling at the moment is the fact that inflation expectations are holding up. The outlook for sterling over the medium term remains negative." Euro and Dollar buyers may wish to consider taking advantage of the Pound's resilience in the near-to-medium term or place a stop order in the market to protect against a downward move.
EUR/USD
The Dollar remained largely unchanged against the Euro yesterday, trading at $1.4726 in New York, as U.S jobless claims fell to a nine month low, encouraging demand for higher-yielding assets. U.S stocks rose for a second day, as the average number of unemployment claims over the past month fell to a one-year low and the U.S trade deficit unexpectedly shrank.
The gap in trade shrank 7.6% to $32.9 billion, from a revised $35.7 billion in September, as a rebound in global growth combined with a weaker Dollar pushed up exports for the sixth consecutive month. Manufacturing in the U.S expanded in November for a fourth month and factories in China stepped up production to the fastest pace in five years.
A technical report from Commerzbank AG shows that the Euro may decline further against the U.S Dollar, should the single currency break through the Fibonacci retracement level from its $1.5144 high. The Euro encountered resistance at the 38.2% retracement level and a break below $1.4625 may see the single currency fall towards the October low at $1.4480.
FX112 Foreign Exchange News Flash - Sterling rallies in the build up to the BoE rate announcement
GBPEUR/GBPUSD
The Pound declined to the lowest level in over a month against the U.S Dollar yesterday, dropping to a low of $1.6215, while the UK currency unexpectedly rallied against the Euro for the first time in three days. In the pre-budget report, the Chancellor announced a slightly higher budget deficit forecast for the current fiscal year of £178 billion, with very little change expected for next year.
Darling also proposed a tax on banking sector bonuses, but little in the way of fresh ideas to curb near-term borrowing levels, as labour market taxes were raised slightly from 2011. There will be inherent fears that no significant action will be taken before the general election, which must be held by June 2010.
In an environment dominated by risk sentiment, market confidence in the UK debt situation will deteriorate further and there is certainly a risk that Sterling may decline further against the U.S Dollar, as investors retreat to the security of save haven assets. The UK currency recovered some losses this morning, as we build up to the Bank of England interest rate announcement.
Policy makers, led by the governor Mervyn King, will keep the benchmark rate at a record low of 0.5% and hold the asset purchase plan at £200 billion. Lee Hardman, a foreign exchange strategist at Bank of Tokyo Mitsubishi UFJ Ltd, said that "sterling may depreciate towards $1.50 against the Dollar and 1.0820 versus the Euro over the next six months."
FX110 Foreign Exchange Daily Insight - The Pound plummets against the majors, amid concerns over credit ratings
GBPEUR/GBPUSD
The Pound declined almost 1% against the Euro yesterday, falling to a low of 1.0996 in London, while the UK currency also fell to a one-month low versus the U.S Dollar, after Moody's Investors Services described the UK as weaker than top rated countries like Germany and France. The Pound fell to a low of $1.6258, as global stocks deteriorated, boosting demand for safe haven assets.
Moody's said that its top debt ratings on the U.S and the UK may be at risk and "test Aaa boundaries" because their public finances are worsening the wake of the worst financial crisis since the Great Depression. The Pound subsequently declined against all of the 16-most actively traded currencies, ahead of the Chancellor's pre-budget report this lunchtime.
The cost of protecting UK debt from default was equivalent to that of Portugal, which is rated Aa2 by Moody's, it's third highest grade. Mark Schofield, head of interest rate strategy at Citigroup Inc, said that "the UK's fundamentals are dismal and don't support the ratings. Only if some pretty draconian fiscal measures are in place will the UK keep hold of its Aaa rating."
The U.S and the UK have "resilient" Aaa ratings, as opposed to the "resistant" top ratings of Canada, Germany and France. None of the top-rated countries are "vulnerable," or have public finances that are "stretched beyond the point of no return to the Aaa category." The Chancellor Alistair Darling said on Monday that he would rather suffer criticism for removing support for the economy too late than too early, indicating that he will postpone measures to reduce the budget deficit.
Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said that "the Moody's story was clearly one significant factor affecting Sterling. Also the comments from Darling weighed on the currency." The Pound lost over 1% in value against the Dollar yesterday and may continue to decline, amid speculation that Darling will revise economic growth forecast lower in the pre-budget report today.
The Pound extended its decline against the majors, amid reports that UK manufacturing unexpectedly slowed in October. A report from the Office of National Statistics showed that factor output was unchanged, after gaining 1.5% in September, a sign that the economy is struggling to shake off the effects of the longest recession ever recorded.
Production fell 0.9% in the third quarter, revised down from 0.8% in the preliminary estimates. The revision will have a negative impact on gross domestic product, which showed that the UK economy contracted 0.3% in the three months through September, the sixth quarter of contraction, making this the longest recession since records began in 1955.
The Bank of England will keep UK interest rates on hold at a record low of 0.5% this Thursday and decide to keep its asset purchase program unchanged at £200 billion. The Monetary Policy Committee was split three ways on whether to increase quantitative easing in November, with the majority recommending a £25 billion injection.
Elsewhere, a separate report from the British Retail Consortium showed that retail sales increased at a slower annual pace in November, as consumers' reined in spending. Stephen Robertson, director general of the BRC, said in a statement that "we would have expected much stronger growth. Uncertainty over jobs and future tax increases and government spending cuts is making customers more cautious."
UK stocks dropped for a second day yesterday, as sales at Tesco Plc missed analysts' estimates. The benchmark FTSE 100 Index dropped 1.2% in London, the biggest decline since November 26th, when concerns over the financial security in Dubai sent stocks plunging by the most in eight months. According to Jeremy Stretch of Rabobank International, the Pound also lost ground because there was little incentive for investors to establish new positions ahead of the pre-budget report.
EUR/USD
The Dollar advanced to another one-month high against the Euro yesterday, as risk aversion stalked the market, following the report from Moody's that government deficits may force a downgrade in the U.S credit rating. Richard Franulovich, a senior currency strategist at Westpac Banking Corp, said "risk aversion's rippling through, giving the Dollar a boost."
The U.S currency rallied 0.5% against the Euro to a high of $1.4724 in New York, the strongest level since November 4th. German industrial production unexpectedly fell for the first time in three months in October, led by a drop in export demand. Output decreased 1.8% from September, when it advanced 3.1% and Germany's recovery from the worst recession in a generation may slow, as a stronger Euro weighs on export demand.
According to Andrew Chaveriat, a technical analyst at BNP Paribas SA, the Euro may continue to drop towards its 2008 low against the U.S Dollar, falling below support $1.4625. "Euro-dollar is in position to have completed its March rally. A drop below $1.4625 would confirm a major top is in place that euro-dollar is at the early stages of a long-term, multi-month decline potentially re-testing or breaking the $1.2330 October 2008 cycle low."
FX108 Foreign Exchange Daily Insight - The Dollar rallies against the majors, as global stocks decline
GBPEUR/GBPUSD
The Pound declined against the Dollar yesterday, falling to a low of $1.6315 in London, while the UK currency also lost ground versus the Euro, after peaking above 1.11 at the end of last week. The Pound fell to the lowest level in more than a week against the Dollar, as investors speculated that the Treasury's pre-budget report will signal a deterioration in the country's finances.
The Chancellor of the Exchequer Alistair Darling is due to deliver his pre-budget report on Wednesday and he his expected to lower his forecast for economic growth this year. The Pound is likely to decline further in the build up to the report, while the Bank of England's monetary policy committee is expected to leave interest rates unchanged at 0.5% on Thursday.
The Central Bank has refused to comment on the possibility of ending emergency stimulus measures, amid speculation that policy makers will increase asset purchases from the current £200 billion in February. Recent economic data suggests that the UK economy probably returned to growth in the fourth quarter but Mervyn King has declared that the recovery isn't "particularly strong."
Valentin Marinov, a senior foreign-exchange analyst at Commerzbank AG, said "the MPC members are likely to reiterate that the quantitative easing program remains on track. The still slow recovery in the UK and the prospect of more liquidty injections into the economy should help the Euro appreciate against the Pound, trading at 1.0989 this week."
On that basis, Euro buyers may wish to take advantage of the current spot rate or at least look at the benefits of using a stop order to protect against the likely scenario that Sterling will depreciate during Darling's pre-budget report. Although the BoE probably won't alter existing policy measures on Thursday, the UK currency could come under additional selling pressure in the build up to the announcement.
Geoffrey Yu, a foreign exchange strategist at UBS AG, said that "the Pound needs to navigate the risks of the pre-budget report and the Bank of England Monetary Policy Committee meeting. Sterling will probably be a laggard in the short-term." The Pound also dropped against the Dollar, as risk appetite waned, with UK stocks little change from Friday.
The benchmark FTSE 100 Index dropped less than 0.1% in London, as raw material producers headed lower, while banking shares also declined. The gauge has risen 52% from the lowest point on March 3rd, as governments worldwide committed around $12 trillion in a global effort to end the recession, while central banks lowered interest rates to near zero.
Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc dropped significantly, after Alistair Darling refused to rule out a tax on excessive bonus payments. He said that he has not yet seen plans from government controlled RBS Plc and that he has the power to veto any proposals that he would consider to be excessive.
In his pre-budget report, Darling will outline government borrowing forecasts for fiscal 2011 and announce a deterioration in public finances. The budget deficit was a record 11.4 billion in October, the most since records began in 1993 and the Treasury forecasts a gap surpassing 12% of UK gross domestic product in the fiscal year, The biggest amongst the Group of 20 nations.
According to Adrian Schmidt, investors may boost their borrowings of sterling in order to exchange it into the currencies of countries with higher interest rates, weakening the Pound further. The prospects of UK borrowing costs being increased before the rest of Euro is remote. In terms of economic data, the focus today will fall on the BRC retail sales report and UK industrial production in October.
EUR/USD
The Dollar advanced to its highest level in a month against the Euro yesterday, amid speculation that the rally stocks has outpaced earnings projections and the prospects for economic growth. The U.S currency posted gains versus the majority of the majors, as U.S non-farm payrolls showed that employers cut the fewest jobs last month since the recession began.
The Dollar climbed to a high of $1.4756 against the Euro yesterday, the strongest level since November 4th. The U.S currency fell earlier in the day, amid speculation that the Federal Reserve will trail other central banks in increasing borrowing costs, after the chairman Ben Bernanke cited economic "headwinds."
The Euro also came under renewed selling pressure, after German factory orders unexpectedly fell for the first time in eight months in October, led by a decline in exports. As a result, Germany's economic recovery may slow, as the impact of government stimulus measures, such as the now expired cash-for-clunkers scheme, and the stronger Euro erodes demand for Euro-zone exports.
Elsewhere, the ECB Chairman Jean-Claude Trichet said yesterday that a strong Dollar and a "gradual" appreciation of Asian currencies are important for the global economy. He said "it's extremely important that U.S authorities mentioned and are very keen on repeating that a strong U.S Dollar is in the interest of the U.S and I say that of course it's in the interest of partner states."
Data Released 8th December
U.K 00:01 BRC Retail Sales (November)
U.K 09:30 Industrial Production (October) - Manufacturing Production
FX104 Foreign Exchange Daily Insight - The Pound rallies against the majors but it's unlikely to last
GBPEUR/GBPUSD
Following on from last week, the Pound rose to the highest level in a week against the U.S Dollar on Wednesday, touching a high of $1.6693 in London, as UK stocks gained and boosted demand for higher-yielding currencies. Higher metal prices boosted raw material shares, while UBS AG strategists said that the FTSE 100 Index may rally 18% by the end of next year, further diminishing the allure of the Dollar as a safe haven asset.
The benchmark FTSE 100 Index consolidated on Tuesday's upward surge and gained for three consecutive sessions, as concerns over the financial turmoil in Dubai subsided. The gauge has rebounded 51% from its lowest point on March 3rd, as government stimulus measures and record low interest rates boosted investors' confidence.
The Chartered Institute of Purchasing and Supply reported that an index of construction advanced more than expected in November, while the Bank of England's chief economist Spencer Dale said that the UK economy has begun to stabilise. Dale, who was the sole voice for a no change in quantitative easing last month, has reiterated that the economy will exit the recession in the fourth quarter.
The pace of contraction in the UK construction industry has slowed for the first time since August and the report provides a further indication that the economy has begun to stabilise. Dale said in a speech last week that "the easing in monetary and fiscal policy is providing considerable support to the emerging recovery."
Jeremy Stretch, a senior currency strategist at Rabobank International, said that "risk appetite looks as if it's on the rebound and that is providing a floor for sterling. Concern that Dubai World may default has "eased somewhat," and central banks globally are still pumping significant level of liquidity into the market. That is playing back into risk sentiment."
The tentitative improvement in Sterling sentiment is vulnerable, as the UK economic recovery lags behind the U.S and the Euro-zone, but speculation that the restructuring of debt in Dubai will hurt UK lenders has subsided. The UK currency posted its biggest drop in a month against the Dollar on November 26th, the day after Dubai World sought a "standstill" agreement on the loans
The Pound declined against the Euro on Thursday, dropping back under 1.10 in London, while the UK currency also fell 1% in value against the U.S Dollar, after a report showed that a gauge of service industries dropped in November. The report from the Chartered Institute of Purchasing and Supply showed that UK services expanded at close to the fastest pace in two years, but not to the degree that economists' had predicted.
The Nationwide Building Society confirmed last week that UK house prices are rising, while an index of manufacturing output showed expansion in November. The Bank of England have cut interest rates to a record low of 0.5% and embarked on an emergency stimulus policy in an attempt to revive the economy from the worst recession on record.
Gross domestic product declined 0.3% in the three months through September, modestly less than preliminary estimates, as manufacturing, services and housing all showed tentative signs of recovery. However, the disappointing result of last week's service sector growth saw the Pound decline against a basket of currencies, falling towards $1.65 versus the U.S Dollar, after earlier trading as high as $1.6719.
Elsewhere, the Pound also came under additional selling pressure on Thursday, after Conservative Mark Field said that the UK faces the risk of a Sterling collapse and may require financial aid from the International Monetary Fund if the general election next year results in a tie. An opinion poll published last week showed that Conservatives' lead is insufficient to secure a majority of lawmakers.
The Pound rallied marginally above 1.11 against the Euro on Friday, while the UK currency lost ground versus the U.S Dollar, after the monthly U.S employment report showed that payrolls were better-than-preliminary estimates. According to the Royal Bank of Canada, the UK currency may decline amid concerns that the government is borrowing too much and the prospect of no party winning an outright majority in the general election.
The Bank of England's Monetary Policy Committee is due to meet this Thursday and the Pound may decline in the build up to the monthly announcement. While recent communication from the MPC would indicate that it is too soon to rule out further quantitative easing, the December meeting is unlikely to result in any policy changes.
Policy makers are divided on whether to increase the asset purchase plan from the current £200 billion, Euro and Dollar buyers may wish to take advantage of the spot rate or at least consider a stop order to protect against a downward move. In terms of economic data, industrial production is expected to show a further rise in output in November, while consumer confidence and retail sales survey are also scheduled for release.
EUR/USD
The Euro rallied against the Dollar on Thursday and recorded its biggest intraday gain in a month versus the Japanese Yen, after the European Central Bank kept interest rates unchanged at 1% in December and announced the first steps in withdrawing emergency stimulus measures. The single currency rose to the strongest level in 16 months against the Dollar, as Trichet said that the need for additional measures has diminished.
The ECB is clearly becoming concerned with inflation, after flooding banks with cheap cash to fight the worst recession since the Second World War. The Euro gained against the Dollar amid speculation that policy makers will raise interest rates quicker than the U.S Federal Reserve. The Euro rallied to a high of $1.5140 against the Dollar and looks poised for a move towards the resistance at $1.5250
Following the ECB's announcement, BNP Paribas SA said that it's "outright bullish" on the Euro, as the Central Bank withdraws emergency stimulus over the next quarter. Economists at BNP said yesterday that investors should buy the Euro, anticipating it will advance to $1.54. In terms of economic data, Europe's manufacturing and service industries expanded at the fastest pace in two years in November.
The Dollar bounced back against the Euro on Friday, as U.S employers cut the fewest amount of jobs last month since the recession began, as the jobless rate fell. Payrolls fell by 11,000 workers, less than the most optimistic forecast among economists, while the unemployment rate declined to 10%. As a result, stocks soared worldwide as traders increased bets that the Fed would raise interest rates in 2010.
FX099 Foreign Exchange Daily Insight - The Euro rallies amid signs that the ECB are ready to withdraw emergency stimulus
GBPEUR/GBPUSD
The Pound declined against the Euro yesterday, dropping back under 1.10 in London, while the UK currency also fell 1% in value against the U.S Dollar, after a report showed that a gauge of service industries dropped in November. The report from the Chartered Institute of Purchasing and Supply showed that UK services expanded at close to the fastest pace in two years, but not to the degree that economists' had predicted.
David Noble, chief executive at CIPS, said in a statement that "the service sector is continuing to grow but at a steady rather spectacular rate. The UK services industry has shown growth for seven months now, which looked very unlikely in the dark days at the start of the year." The Pound rallied earlier this week, after BoE policy maker Adam Posen said that the UK economy would have a strong recovery from the recession.
The Nationwide Building Society confirmed this week that UK house prices are rising, while an index of manufacturing output showed expansion in November. The Bank of England have cut interest rates to a record low of 0.5% and embarked on an emergency stimulus policy in an attempt to revive the economy from the worst recession on record.
Gross domestic product declined 0.3% in the three months through September, modestly less than preliminary estimates, as manufacturing, services and housing all showed tentative signs of recovery. However, the disappointing result of yesterday's service sector growth saw the Pound decline against a basket of currencies, falling towards $1.65 versus the U.S Dollar, after earlier trading as high as $1.6719.
The UK currency was also undermined after the benchmark FTSE 100 Index swung between gains and losses for the majority of the session. UK stocks rallied just 0.1% as falling metal prices triggered a drop in raw-material producers. Banking shares continued to rally, amid speculation that the financial uncertainty in Dubai will be resolved.
Elsewhere, the Pound also came under additional selling pressure, after Conservative Mark Field said that the UK faces the risk of a Sterling collapse and may require financial aid from the International Monetary Fund if the general election next year results in a tie. An opinion poll published last week showed that Conservatives' lead is insufficient to secure a majority of lawmakers.
Field said yesterday that "there's a substantial risk of a sterling crisis, long-term interest rates would soar and the nation's essential AAA gilt credit rating might even face a downgrade." The negative tone of Field's statement undermined confidence in the Pound, as the UK currency lost ground against the majority of the 16 most actively traded currencies. Sterling may continue to fall against the Euro, after the ECB President Jean-Claude Trichet confirmed that the Central Bank will withdraw emergency stimulus measures.
EUR/USD
The Euro rallied against the Dollar yesterday and recorded its biggest intraday gain in a month versus the Japanese Yen, after the European Central Bank kept interest rates unchanged at 1% in December and announced the first steps in withdrawing emergency stimulus measures. The single currency rose to the strongest level in 16 months against the Dollar, as Trichet said that the need for additional measures has diminished.
The ECB is clearly becoming concerned with inflation, after flooding banks with cheap cash to fight the worst recession since the Second World War. The Euro gained against the Dollar amid speculation that policy makers will raise interest rates quicker than the U.S Federal Reserve. The Euro rallied to a high of $1.5140 against the Dollar and looks poised for a move towards the resistance at $1.5250
Carsten Brzeski, senior economist at ING Group, said that "if they do anything now which suggests in the slightest way an early rate hike, the Euro will go through the roof." Policy makers will be conscious that the Euro has gained 20% against the Dollar since February, which is threatening to curtail the pace of European exports.
Following the ECB's announcement yesterday, BNP Paribas SA said that it's "outright bullish" on the Euro, as the Central Bank withdraws emergency stimulus over the next quarter. Economists at BNP said yesterday that investors should buy the Euro, anticipating it will advance to $1.54. In terms of economic data, Europe's manufacturing and service industries expanded at the fastest pace in two years in November.
FX098 Foreign Exchange Daily Insight - The Pound rallies against the majors as UK stocks rally for a second day
GBPEUR/GBPUSD
The Pound rose to the highest level in a week against the U.S Dollar, touching a high of $1.6693 in London, as UK stocks gained for a second successive day. Higher metal prices boosted raw material shares, while UBS AG strategists said that the FTSE 100 Index may rally 18% by the end of next year, further diminishing the allure of the Dollar as a safe haven asset.
The benchmark FTSE 100 Index consolidated on Tuesday's upward surge and gained 0.5% yesterday. the gauge has rebounded 51% from its lowest point on March 3rd, as government stimulus measures and record low interest rates boosted investors' confidence. Nick Nelson, UBS equity strategist, wrote in a note yesterday that the FTSE 100 will rise to 6,250 by 2010, as earning growth rockets 25%.
The Pound also climbed for a second day against the Euro and breached above 1.10 in Europe, after an index showed that the pace of the slump in the UK contraction industry slowed. Concerns also eased that Dubai World may default on its debt repayments, after it began negotiations to reschedule payments on about $26 billion of debt.
The Chartered Institute of Purchasing and Supply reported that an index of construction advanced more than expected in November, while the Bank of England's chief economist Spencer Dale said that the UK economy has begun to stabilise. Dale, who was the sole voice for a no change in quantitative easing last month, has reiterated that the economy will exit the recession in the fourth quarter.
The pace of contraction in the UK construction industry has slowed for the first time since August and the report provides a further indication that the economy has begun to stabilise. Dale said in a speech yesterday that "the easing in monetary and fiscal policy is providing considerable support to the emerging recovery."
Jeremy Stretch, a senior currency strategist at Rabobank International, said that "risk appetite looks as if it's on the rebound and that is providing a floor for sterling. Concern that Dubai World may default has "eased somewhat," and central banks globally are still pumping significant level of liquidity into the market. That is playing bank into risk sentiment."
The tentitative improvement in Sterling sentiment is vulnerable, as the UK economic recovery lags behind the U.S and the Euro-zone, but speculation that the restructuring of debt in Dubai will hurt UK lenders has subsided. The UK currency posted its biggest drop in a month against the Dollar on November 26th, the day after Dubai World sought a "standstill" agreement on the loans
The Pound slipped 0.1% against the Dollar in the month of November and a further 1.9% versus the Euro. United Arab Emirates' Minister of economy Sultan bin Saeed Al-Monsouri said yesterday that Dubai's economy is solid and "able to face crisis and challenges no matter how tough they are."
The focus today will fall on the CIPS services PMI for November and the report is expected to show that the gauge of activity rose to the highest level since August 2007. According to Commerzbank AG, gains by the Pound may be limited due to the likely "underperformance" of the UK economy. Ulrich Leuchtmann said yesterday that "in the absence of fundamental support we think that the latest Pound strength should prove only temporary."
EUR/USD
The Dollar remained largely unchanged against the Euro yesterday, trading back to a high of 1.5108 during the day, before a modest consolidation back towards 1.5030 last night. European producer prices declined for a 10th straight month in October, as companies continued to cut costs, even after the economy returned to growth in the third quarter.
So-called factory-gate inflation dropped 6.7% from a year earlier but the report failed to have a telling market impact, as the result was only modestly outside initial projections. European companies may struggle to increase prices next year, as rising unemployment prompts consumers to cut back spending, while a stronger Euro makes exports less attractive to overseas investors.
The Dollar made gains against the Euro, after companies in the U.S cut more jobs than expected in November, indicating that the labour market may be slow to recover. The ADP employment report showed that an estimated 169,000 jobs were lost in November, the fewest amount since July 2008. The U.S currency gained some ground, as the larger cut in jobs eroded buying for higher-yielding currencies.
FX096 Foreign Exchange Daily Insight - The Pound rallies strongly against the Dollar, amid a revival in risk appetite
GBPEUR/GBPUSD
The Pound rallied against the U.S Dollar yesterday, rising 2% to a high of 1.6620, while the UK currency also made gains versus the Euro, as house prices rose for a seventh consecutive month and concerns eased about the financial security in Dubai. Dubai World began talks with banks about debt restructuring, easing tension that a delay in payments will hurt UK lenders.
According to JP Morgan Chase & Co, Royal Bank of Scotland Group Plc, Britain's biggest government controlled bank, was Dubai World's largest loan arranger since January 2007. HSBC Holdings Plc, Europe's largest bank, had the most at risk to the United Arab Emirates since the end of 2008. The Pound declined to a low of $1.6270 versus the U.S Dollar on Monday, amid concerns that UK banks would be most affected by the financial turmoil in Dubai.
The Pound bounced back against the Dollar yesterday, after three consecutive days of losses, amid reports from the Nationwide Building Society that the average cost of a home in the UK rose 0.5% in November. Dubai World also began negotiations to restructure about $26 billion in debt and confirmed that the remainder of its $59 billion of liabilities is on "a stable financial footing."
Steven Barrow, head of group of 10 currency strategy at Standard Bank Plc, said that "the market seems more confident about the Dubai situation. UK banks are at the forefront of this problem and therefore an easing of the problem gives sterling a special lift." The appreciation in Sterling yesterday indicates that the UK currency may challenge the resistance around $1.6860 over the coming weeks, as confidence slowly returns to the market.
The Pound continued to make gains against a basket of currencies, despite economic data that showed UK manufacturing expanded less than economists' expected in November, as the economy struggled to emerge from the worst recession on record. An index based on a survey of companies conducted by the Charted Institute of Purchasing and Supply showed that factory production fell back towards the level that indicates expansion.
The UK economy contracted 0.3% in the revised estimate for the third quarter, less than preliminary forecasts, as the slump in manufacturing and services eased. Bank of England policy maker Andrew Sentance said last week that it is "premature" to discuss tightening monetary policy. While the governor Mervyn King said that the economic recovery isn't "particularly strong."
David Noble, chief executive at CIPS, said in a statement that "the manufacturing sector has slowly but surely started to grow again and conditions are looking decidedly less sickly than at the start of the year. However, the extent to which output fell during the recession means that the growth is coming from a particularly low base and there is a long way to go before we can say the sector has returned to full health."
Morgan Stanley said yesterday that the rebound in the UK economy may be slower than elsewhere in Europe and the U.S. On the month, the Pound declined 0.1% against the Dollar in November and dropped 1.9% in value versus the Euro, as the UK remained in a technical recession for six consecutive quarters.
Graham Secker and Catharina Luebke-Detring wrote in a report to clients yesterday that the UK "is likely to limp out of recession, certainly relative to its global peers. An indecisive election result next year may also weaken the Pound." According to analysts at Standard Bank Plc, the Pound looks quite bullish against the Australian and New Zealand Dollar with Steven Barrow recommending long positions.
The Pound also enjoyed a strong intra-day rally against the U.S Dollar, after UK stocks rose the most in over four months in London. China's manufacturing grew last month at the fastest pace in five years, while concerns eased about the possible default by Dubai World. The benchmark FTSE 100 Index gained 2.3%, the steepest rally since July 15th.
EUR/USD
The Dollar declined against the majority of the 16 most actively traded currencies yesterday, as an increase in risk appetite encouraged demand for higher-yielding assets. U.S pending home resales also unexpectedly rose and Dubai World confirmed that talks about restructuring debt payments had been "constructive."
Stephen Galy, a currency strategist at BNP Paribas SA, said that "the Dubai effect is fading. Equities have had time to rally, and the foreign exchange market is basically following." The U.S currency weakened 0.6% to $1.5108 against the Euro and the Dollar lost 1.9% in November to record its fifth consecutive monthly decline.
The German unemployment data was stronger-than-expected with a monthly decline supported by government fiscal measures. There was a small upward revision in the Euro-zone manufacturing data, although there was also important signs of divergence as conditions in Spain and Greece deteriorated. There is likely to be some caution in the market ahead of Friday's non-farm payrolls data and the Dollar will continue to decline if equities sustain the recent rally.
FX095 Foreign Exchange Daily Insight - The Pound declines to a one month low versus the Euro
GBPEUR/GBPUSD
The Pound declined against the Euro yesterday, plunging to the lowest level in more than a month at 1.0930, while the UK currency extended losses against 15 out of the 16 most actively traded currencies, as investor confidence waned. The escalating concerns over the financial stability in Dubai and the subsequent exposure for UK banks saw stock market tumble worldwide.
UK stocks fell as Morgan Stanley analysts said that British banks may be "most impacted" by the repercussions of Dubai's debt payment restructuring. The benchmark FTSE 100 Index dropped a further 0.7% in London, led by Royal Bank of Scotland Plc, and UK stocks have gained just 3.2% this month, after a 2.9% decline since November 25th.
Dubai World, the investment company burdened by $59 billion of liabilities, will ask all creditors for a "standstill" agreement as it negotiates to extend maturities. Moody's Investors Service said that it would consider the plan a default should bondholders be forced to accept the terms. Dubai borrowed $80 billion to fund an economic boom and diversify its economy but the global credit crisis has hurt companies like Dubai World, as they struggled to raise loans.
Dubai may lose its status as the financial hub in the United Arab Emirates in return for a rescue package from its oil rich neighbors Abu Dhabi. The proposed bailout would mean eliminating financially unviable parts of the competing, state run companies, which lie at the root of the region's $80 billion debt.
British lenders including HSBC Holdings Plc and Standard Chartered Plc have roughly $50 billion invested in the U.A.E. Banking shares continued to slide yesterday, as Lloyds Banking Group Plc lost 5.3% and the subsequent increase in risk aversion has weighed heavily on the Pound, as investors flock to the relative security of the Dollar and the Japanese Yen.
The Pound also came under renewed selling pressure, after the Gfk consumer confidence data showed that sentiment dropped for the first time in 10-months. The UK currency slumped to a low of 1.6298 versus the U.S Dollar, before bouncing back later in the session, even as the Bank of England reported that mortgage approvals rose to the highest level in 18-months.
The report from Hometrack Ltd showed that the average cost of a home in Britain advanced 0.2% this month, the same pace as in October. Lenders granted 57,345 mortgages, compared with 56,205 in September, as the UK economy starts to emerge from the worst recession since the Second World War.
The Governor of the Bank of England Mervyn King said last week that the economy's recovery from the recession isn't "particularly strong", leading to speculation that policy makers will extend the quantitative easing policy beyond £200 billion. Rising unemployment will probably curtail growth in the housing market, while a fundamental lack of supply has been underpinning values.
King's comments over the past month have been almost tailor-made in weakening the Pound and the BoE have confirmed on numerous occasions that a weaker currency is helpful in terms of an economic recovery. He told lawmakers on November 24th that the UK faces "profound challenges" and that additional stimulus can't be ruled out.
Hans-Guenter Redeker, head of global currency strategy at BNP Paribas SA, said that "we saw consumer confidence declining for the first time since January, which is an important event, and it looks like house price increases are flattening out." The Pound fell to the lowest level since October 26th against the Euro and looks poised to extend those losses over the coming week.
Redeker also commented on the UK's exposure in Dubai and said that the struggling Gulf state may have larger asset holdings in the UK than in other countries. "Dubai has significant holdings in UK real estate and the share market. These holdings will create a sterling negative cash flow when sold off."
Analysts at Commerzbank AG also said that the Pound may continue to decline against the Euro, citing technical indicators. The Euro cleared its 55-day moving average, recent highs and so-called Fibonacci retracement resistance at 1.1136 last week. Karen Jones, head of currency technical analysis, said "we look for further gains towards 1.0822. Should the Euro break above 1.0822, we target a move towards 1.0537 over the next one to three weeks."
EUR/USD
The Dollar declined for the first time in three days against the Euro yesterday, as the United Arab Emirates' central bank said that it "stands behind" local and foreign banks. The Euro also gained some momentum, amid reports that European consumer prices increased for the first time in seven months in November, led by a surge in energy costs.
Consumer prices rose 0.6% year-on-year in October, more than initial forecasts, as commodity prices continue to rise, stoking inflationary pressures. The European Central Bank has signaled that it sees "moderate" inflation and is in no particular rush to withdraw emergency stimulus measures but yesterday's report may rekindle speculation over an interest rate hike.
The Dollar declined amid an increase in risk appetite, as U.S stocks advanced after the U.A.E pledged to back Dubai's banks and ease the debt crisis. U.S business activity also unexpectedly accelerated this month and the Dollar weakened 0.2% to $1.5021 versus the Euro, extending its monthly drop to 1.6%.
FX091 Foreign Exchange Daily Insight - The Pound declines amid concerns of the UK's exposure in Dubai
GBPEUR/GBPUSD
Following on from last week, the Pound rallied against the U.S Dollar on Wednesday, climbing by the most in more than a week, after a report from the Office of National Statistics showed that UK gross domestic product contracted by less than previous estimates in the third quarter. GDP fell 0.3% from the previous three months, compared with a prior measurement of 0.4%, as slumps in manufacturing and services eased.
The government is fighting the worst unemployment rate in 14-years and the resilience in consumer spending is unlikely to last, which could severely undermine the economic recovery. The Bank of England have maintained UK interest rates at the lowest level on record and expanded the quantitative easing program on three occasions since March.
The governor of the Central Bank Mervyn King made a statement to the Treasury Select Committee yesterday and reiterated that a weak Pound is helping towards sustaining the economic revival. King also maintained that additional stimulus measures have ensured Britain's escape from the recession but the recovery isn't "particularly strong."
Steven Barrow, head of Group of 10 currency strategy at Standard Bank Plc, said that "sentiment toward the Pound is pretty poor and I expect it to weaken further. It looks as if we have the possibility of further quantitative easing from the Bank of England whereas all the sounds coming out of the European Central Bank are about whether they need to tighten.
The Pound declined to the lowest level in a month against the Euro on Thursday, while the UK currency also lost 1.2% in value versus the U.S Dollar, after UK stocks declined and encouraged investors to seek the security of safe haven assets. The FTSE 100 index plunged 2.7% in London and headed for its steepest drop since May 21st.
The London Stock Exchange Group Plc, whose largest shareholder is Borse Dubai Ltd dropped by the most in eight months, after a proposal by Dubai to delay debt payments triggered the biggest sovereign defult since 2001. HSBC Holdings Plc, a lender to Dubai World, led a retreat among banking shares, while technical problems halted trading in London for more than three hours yesterday.
David Buik, a markets analyst at BGC Partners, said "certainly the Dubai debacle and the uncertainty that is has created has had a severe knock-on effect on European equity markets. This is not the end of the world for Dubai but it is a hammer blow." The cost of protecting government notes from Qatar and Saudi Arabia rose by the most since June, as Dubai World, with $59 billion of liabilities, sought a "standstill" agreement from creditors.
Dubai borrowed $80 billion in a four year construction boom that reduced its reliance on falling oil supplies and created the region's tourism and financial hub. HSBC Holdings Plc declined 5.3% yesterday, while the FTSE 350 Banks Index plummeted 5.8% to record the steepest decline since May. Dubai's world lenders include Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc.
The aggressive swings in risk sentiment continue to be the driving force in financial markets and the Pound is under pressure as equities slide. The UK currency may continue to decline against risk sensitive currencies like the Dollar and the Japanese Yen. The Pound also came under pressure yesterday, after Bank of England policy maker Andrew Sentence said that it's "premature at the moment" to discuss raising interest rates.
Ian Stannard, a senior currency strategist at BNP Paribas SA, said "there are concerns with regard the extent of the UK banking sector exposure in Dubai so that is weighing on Sterling. The underlying picture for Sterling was already fundamentally weak and this news adds to the negative picture."
Stannard also added that the Pound could fall to $1.57 over the coming weeks and Dollar buyers would be well placed to take advantage of the current rate, after 1% drop in the UK currency yesterday. The UK currency declined 0.6% against the Euro and broke through support at 1.10, despite reports from the Confederation of British Industry, showing that an index of retail sales rose to the highest level in two years.
The Pound declined to the lowest level since November 3rd against the Dollar on Friday, as the FTSE 100 Index recorded its second week of losses. Goldman Sachs Group Inc downgraded retailers and Dubai's attempts to reschedule its debt continued to scare investors. The Pound plunged to a low of $1.6287 against the Dollar and may continue to slide over the coming weeks.
Paul Robinosn, a currency strategist at Barclays, said that "at the moment the Pound is being driven by global attitudes to risk. It's obvious that the economy has shrunk more than government forecasts suggested." Barclays remain "relatively optimistic" about the outlook for the Pound and still forecast that the UK currency will hit $1.64 against the Dollar and 1.1365 versus the Euro by March.
The Pound may remain on the back foot this week, ahead of the Bank of England interest rate announcement on Thursday. Investors will be looking to the UK's November manufacturing and services PMIs for direction, but the UK currency remains vulnerable to speculation surrounding additional quantitative easing and the spike in risk aversion.
EUR/USD
The Dollar rallied against 14 out of the 16 most actively traded currencies last week, after Dubai's attempt to reschedule its debt encouraged investors to seek the security of so-called safe haven assets. The U.S currency remained largely unchanged against the Euro, gaining towards $1.4950 in New York, from a low of $1.5144 on Wednesday, the weakest level since August 2008.
Geoffrey Yu, a currency strategist at UBS AG, said yesterday that "markets took it as the Fed gave a green light to sell the Dollar. At the same time, it seems that all central banks are sounding a bit more positive." The Euro retreated from a 15-month high amid speculation that the single currency has risen too quickly and traders adjudged the move as overdone.
Following last week's increase in risk aversion, investor's appetite could be the key feature this week, with the Dollar and the Japanese Yen the biggest gainers. Mounting concerns over Dubai's debt position will be the driving force in financial markets this week, preventing the Euro from mounting a further challenge above the $1.50 level.
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