GBP/USD GBP/EUR
The Pound declined against the Dollar for a fourth consecutive day, as gilts rose and equities dropped, whilst an industry report showed that financial services companies may lose as many as 15,000 jobs in the second quarter. UK stocks fell, sending the FTSE 100 Index to its biggest drop in four weeks, following reports that the U.S government said that some banks will need further government stimulus.
In addition, lower commodities prices weighed on mining and oil shares, while banking stocks also lost ground. Barclays Plc slumped 14% on the day, as Societe Generale SA said that the government could end up owning up to 67% of the struggling bank, as it recommended selling shares. The FTSE sank 3.5% yesterday, to record the biggest loss since March 2nd, but the gauge has still climbed 7.1% from the yearly low.
Banks from Barclays to Citigroup Inc said that they had a positive and profitable start to the year, while the U.S Treasury Secretary Timothy Geithner unveiled plans to rid struggling financial companies of toxic assets and bad debt. However, the recent drop in equity markets has encouraged investors to seek the security of Dollar denominated assets, as an element of risk aversion creeps back into the market.
According to David Fineberg, a senior trader at CMC Markets Plc in London, said yesterday that “the financials are struggling and crude oil prices are tumbling back towards $50 as the news acts as a stark reminder that there’s no quick fix to the economic malaise”.
The Pound slipped to its lowest level in nearly two-weeks against the majors, as we build up to the G-20 summit in London on April 2nd, where the leaders of advanced and emerging economies prepared to meet and discuss a global approach to financial regulation. Yesterday’s decline against the Dollar has put the Pound on course for its third straight quarterly loss, the longest stretch of declines since December 2005.
The UK currency may come under further selling pressure in the build-up to the summit, as Ian Stannard, senior currency strategist at BNP Paribas SA, said that “the increasing likelihood that we might not get anything significant out of the G-20 is going to weigh on equity markets and the Pound too. Sterling could well be the underperformer of the week.”
The Pound found support on dips towards 1.0700 versus the Euro, with a minor recovery towards 1.0800 overnight. Sterling also proved more resilient against the Dollar, after initial losses with a rally to
$1.4260, from lows near $1.4110, amid a mixed day of UK economic data.
According to a report from the Confederation of British Industry, U.K financial services companies could cut as much as 1.4% of the industry’s workforce in the second quarter, as business confidence declines. The remaining UK economic data was mixed, as mortgage approvals actually rose to the highest level since May 2008, with a monthly increase to 38,000.
The report from the Bank of England showed that the number of UK loans approved far exceeded initial expectations and raised speculation that the slump in the housing sector may be reaching the bottom. A separate report from Hometrack Ltd showed that house prices fell at the slowest pace in 10-months, as the average cost of a home in Britain declined just 0.6% from February to £156,100.
The steepest economic contraction since 1980 has sapped demand for housing, amid rising unemployment and tighter lending conditions, after prices tripled in the decade ending 2007. Analysts some of the biggest financial institutions in the world have said this month that the property market may now be showing some signs of recovery, as government aid to bolster lending takes effect.
In addition, UK consumer confidence increased to the highest level since May, after the Bank of England slashed interest rates to a record low of 0.5%. The Gfk index of sentiment rose five points to a reading of minus 30 in March and the report increases some level of optimism in the UK economy, suggesting that lower rates are restoring confidence.
Elsewhere, the Pound stood relatively unchanged after reports that consumer lending and credit data remained weak, as consumers maintained a very cautious approach to borrowing and major banks also retained a restrictive policy towards lending. Government bonds also advanced, after the Bank of England bought £2.5 billion of gilts yesterday, as part of its quantitative easing policy to reduce borrowing costs.
EUR/USD
The diminishing appetite for risk pushed the Euro lower against the Dollar on Monday, falling to an intraday low of $1.3115, before a corrective recovery towards $1.3190, as significant technical support levels held steady. The single currency has continued to improve against the Dollar this morning, amid a revival in global stocks, but gains will be limited with markets on alert over ECB comments on Thursday.
In terms of economic data, the Euro was undermined following reports that European consumer confidence fell to the lowest level on record in March. The G-20 meeting in London this week will see finance ministers discuss the best way to fight the global recession, which has prompted job cuts across the Euro-zone.
An index of business and consumer sentiment in the Euro-region declined to a reading of 64.65, the lowest indicator since the series began in 1985, from 65.3 in February. Gauges for industry, services and consumer sentiment all reached record lows. While a separate report showed that Spanish consumer prices fell from a year earlier for the first time in history, indicating that deflationary pressures may spread.
The global financial crisis has pushed the Euro-zone economy into the worst recession since the Second World War, forcing companies to reduce output and shed their workforce. The European Central Bank are expected to cut interest rates by another 50 basis points on Thursday. However, the market will be watching the tone of the accompanying press conference for any clues that policy makers will engage in some method of quantitative easing policy.
Elsewhere, the Euro also came under further selling pressure, after the Purchasing Managers’ Index showed that European retail sales declined for a 10th consecutive months in March, as the deterioration in the labour market hampered spending. According to a report from JP Morgan & Chase Co, the single currency may extend its decline against the Dollar this week, should the Euro break below $1.3100.
Citing the current trading patterns, a level of $1.3097 represents a 50% retracement of the Euro’s rally against the Dollar, which began on March 4th. Referring to a percentage ratio that’s part of the Fibonacci sequence, a subsequent support of $1.3070 would represent the point before the Euro broke into a new range, after the Federal Reserve announced on March 18th that it will undertake the purchase of treasuries.
Data Released 31st March
U.K 00:01 Gfk Confidence (March)
GER 09:00 Unemployment Rate (March)
– Job / Applicants
EU 10:00 HICP Flash (March)
U.S 14:00 Case Shiller House Prices (January)
U.S 14:45 Chicago PMI (March)
U.S 15:00 Consumer Confidence (March)
written by Adam Solomon
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