GBPEUR/GBPUSD
The Pound dipped sharply lower against the majors yesterday, briefly falling under 1.1700 versus the Euro, while the UK currency also retested support at $1.62 against the U.S Dollar. Retail sales unexpectedly declined in May for the first time in three months and the Bank of England governor Mervyn King said that any economic recovery is likely to be “protracted”, as banks ration loans.
The report from the Office of National Statistics showed that sales declined 0.6% from the previous month, despite expectations of a more positive 0.3% increase. Store sales also dropped 1.6% from a year earlier and the Pound subsequently declined against all of the 16 most actively traded currencies. Recent economic reports have indicated that the UK recovery from the worst recession since 1979 will be uneven, as unemployment continues to spiral.
Elsewhere, the latest monthly government borrowing data registered a record monthly deficit of £19.9 billion. The latest bank lending data was also weak as lending remained under pressure. The data released yesterday will certainly have some negative impact on the Pound, even if the immediate impact is measured.
The UK currency will also continue to be influenced strongly by swings in risk appetite and Euro and Dollar buyers should take advantage of the current rate, or at the very least consider using a stop order to protect against a sustained downward move.
While recent surveys on manufacturing and services improved, the Bank of England confirmed yesterday that the flow of loans to companies stayed close to the lowest level in nine-years in June. David Tinsley, an economist at National Australia Bank in London, said “today’s retail sales have muddied the waters. We’d agree the growth outlook has improved. But analysis of the past recession suggests extreme caution on the pace of recovery.”
The Pound dropped 1% against the Dollar yesterday, falling to a low of $1.6189, but recovered later in the session as global risk appetite improved. The UK currency also fell by about the same against the Euro but by the close of trading last night, the Pound had recovered to 1.1750. Over the course of the year, retail sales dropped 1.1%, the most since 1988.
The UK’s economic recovery may be retrained due to the bank’s unwillingness to free up lending conditions. New loans approved remained at weak levels amid “subdued demand” last month, while gross mortgage lending fell 2% in May from the previous month, according to the report from the Council of Mortgage Lenders.
In a statement to the Mansion House earlier this week, the BoE governor Mervyn King, said that “banks’ ability to finance a sustained recovery remains impaired by low level of equity capital”. In stark contrast, the Chancellor Alistair Darling maintained that he’s “confidence there will be a sustained recovery”, suggesting there are divisions emerging between the Bank of England and the Treasury.
The Pound bounced back later in the day, as UK stocks erased earlier losses, after manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months. The benchmark FTSE 100 Index added 0.4% on the day, after falling as much as 0.9% in London. Vodafone Plc and Standard Chartered Plc led the gains.
According to a gauge of technical analysis, the Pound may drop to the lowest level in more than a week versus the Dollar, if it closes below its 20-day moving average. The UK currency may fall to $1.6000 against the Dollar, weakest level since June 9th, after sliding through the $1.6223 level yesterday. The Pound will fall to 1.6100 by year-end, amid concerns about the UK debt position.
EUR/USD
The Euro pushed higher against the Dollar in early trading yesterday, but continued to face tough resistance around $1.4000. The single currency edged weaker ahead of the opening in New York, although the ranges were relatively narrow with the Dollar unable to sustain its momentum, due to a rally in global stock markets.
The U.S Philadelphia Fed Index rose to a reading of -2.2 in June, from -22.6 the previous month, which was much stronger than initial forecasts and the highest reading for nine months.The tone of the report inspired confidence in financial markets and boosted confidence of an economic rebound, especially as the New York manufacturing index had registered a monthly fall.
Elsewhere, initial jobless claims edged slightly higher to 608,000 in the last week, from 605,000 previously, while there was a decline in continuing claims, which will boost confidence that the labour market will stabilise. Risk appetite improved following the U.S data and the Dollar weakened back towards $1.4000 by the close of trading last night.
Data Released 19th June
GER 07:00 Producer Price Index (May)
written by Adam Solomon
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