GBPEUR/GBPUSD
The Pound found support around $1.4450 against the Dollar yesterday, while the UK currency also lost ground against the Japanese Yen. Investors flocked to the security of safe haven assets, after Moody’s Investors Service said that the nation’s finances are “deteriorating rapidly” and the government are taking “risks.”
The degree of risk aversion sweeping through the market saw the Yen rally to a three week high against the Dollar, as Asian stocks fell and U.S equity futures headed lower. Sean Callow, senior currency strategist at Westpac Banking Corp said that “its a veiled threat from Moody’s. Given that we are still above where we were 24-hours ago you would hardly be shocked if the Pound headed back to the low 1.45s against the Dollar.”
The Pound rebounded from the 38.2% retracement level at $1.4450, to a high of $1.4722 in New York yesterday. However the UK currency has continued the downside momentum against the Euro, falling to a low of 1.1023 during the Asian session. The Nokkei 225 stock average fell 1.6% over night, amid speculation that the global recession will continue to delay a recovery in the world economy.
The Chancellor of the Exchequer Alistair Darling delivered his annual budget on Wednesday and the Pound declined following the statement, which seemed to indicate an overly optimistic view that the economy would recover at the end of the year. The UK government’s balance sheet is worsening due to weakening tax revenues and the effect of its bank bailouts.
Moody’s and Standard & Poor’s are currently reviewing the UK’s AAA sovereign credit rating, after the government said that the nation’s debt will reach £1.4 trillion over the next five years. An article in the Daily Telegraph said that Moody’s analysts are scrutinising the details of the budget and said that the Treasury’s projections are ” a cause for concern.”
The tone of the article is weighing on the Pound, particularly against the Euro, as the financial turmoil fueled borrowing costs and swelled the budget deficit to a record level. The UK currency is under considerable pressure against the single currency and may fall below 1.1000 over the coming weeks.
The UK economy has contracted more than economists forecast in the first quarter, the most since Margaret Thatcher came to power in 1979. Gross domestic product fell 1.9% from the final three months of 2008, as manufacturing and business services recorded record declines.
The report from the Official of National Statistics has poured scorn on speculation that the recession is abating, as UK business services shrank 1.8%, the most since the series was compiled in 1983. Manufacturing also contracted 6.2%, the most since at least 1948.
The government this week said that the steepest recession since the Second World War will push the budget deficit to a record level but the Bank of England have argued that the recession may be easing, as they print money to ward off the threat of deflation.
The UK is the first of the Group of Seven nations to report first quarter GDP, as finance ministers prepare to meet in Washington today, to discuss unemployment, deflation and toxic bank assets. The is the first time gross domestic product has contracted by more than 1% for two consecutive quarters, since modern records began after the Second World War.
EUR/USD
The Euro extended this week’s advance against the Dollar, rising back above $1.3200 last night, after a report showed that business confidence in Germany rebounded in April, from the lowest level in 26-years. The optimistic tone of the report has increased speculation that the worst of Europe’s economic slump may be over.
The Ifo Institute in Munich said that it’s business climate index increased to a reading of 83.7, from 82.2 in March. The result was way in excess of initial forecasts and the recent tone of economic data has raised hopes that the Euro-zone recession is waning. The Euro also made gains yesterday, after Credit Suisse Group AG said that it returned profit in the first quarter, while an index of European services and factory industries shrank at the slowest pace in six months.
The Dollar declined against the majors on Thursday, as the tone of U.S economic data was slightly weaker. Initial jobless claims increased 640,000 in the past week, from a revised 613,000 previously. The report dampened hopes that the labour market had improved, while existing home sales slowed to an annual rate of 4.57 million in March, from 4.71 the previous month.
Data Released 23rd April
GER 09:00 Ifo Index (April)
U.K 09:30 Gross Domestic Product (Q1 Prelim)
U.K 09:30 Retail Sales (March)
U.S 13:30 Durable Goods (March)
written by Adam Solomon
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- The Pound declines heavily against the majors amid reports that the Bank of England released emergency funds in attempt to avert a credit crisis
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