The Pound took advantage of broad Euro weakness yesterday to breach back above the 1.2600 barrier by the close of trading last night but the UK currency fell back towards the 1.9900 level versus the Dollar amid a string of economic and geo-political factors.
Crude oil prices fell more than $3 a barrel in New York and to the lowest in six weeks amid forecasts that a tropical storm headed for the Gulf of Mexico will miss oil installations.
The price of oil fell below $126 a barrel after reaching a record high of $147.27 just 11 days ago and the 15% drop in prices in such a short period of time may indicate that the upward trend in prices has peaked.
Elsewhere, the Pound failed to find any support as a distinct lack of UK economic indicators meant that the market’s attention was briefly fixed on comments from Alistair Darling.
In a televised interview, the Chancellor said that the fallout from a global credit crunch is having a “far more profound effect” on the economy than had been previously anticipated.
Darling’s tenure as Finance Minister has coincided with the worst slump in housing and the steepest rise in living costs in a decade.
The tone of his statement indicates that UK policy makers are becoming increasingly pessimistic about the outlook for growth and the focus this morning will fall on the release of the minutes from the Bank of England’s last policy meeting.
At least one member of the MPC would have elected to lower interest rates but the statement from Andrew Sentence last week showed that rising inflation may warrant an increase in borrowing costs.
The voting pattern of the committee will be of particular significance to economists and if one more member joined Blanchflower in electing for a cut in UK interest rates then the Pound may decline further against the Dollar after closing under the support at 1.9944 last night.
The Dollar rallied against the majors yesterday, rising by the most in two weeks versus the Euro after the U.S Treasury Secretary again voiced his support for the greenback in a speech in New York.
Paulson expressed confidence that Congress will agree to proposals designed to “boost confidence” in Fannie Mae and Freddie Mac, two of the largest sources of U.S mortgage financing.
The Dollar has fallen to a record low against the Euro this month and breached the $2.00 level versus the Pound on concerns that two of America’s biggest financial institutions, which guarantee almost of the $12 trillion in U.S home loans outstanding, would fail to survive the worst housing slump in nearly 20-years.
Nevertheless, Paulson remains defiant that the U.S government will pass the bill and he reiterated the importance of a strong dollar, which also found support as the Philadelphia Fed President, Charles Plosser, said that the Reserve Bank should raise interest rates to combat inflation.
The Dollar subsequently rallied 0.9% versus the Euro and also enjoyed a strong intraday move against the Pound after oil prices retreated to a six-year low and the U.S currency may extend its advance today, particularly if commodities continue to tumble.
Data Released 23rd July
U.K 09:30 BoE MPC Minutes (July 9th – 10th Meeting)
U.K 11:00 CBI Industrial Orders (July)
EU 10:00 Industrial Orders (July)
U.S 19:00 Fed Beige Book
written by Adam Solomon
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- The Pound declines to the lowest level in 11 weeks versus the Dollar amid speculation of a June interest rate cut
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