GBPEUR/GBPUSD
The Pound dropped against the Dollar and the Euro yesterday, as global stocks markets declined for the third day this week and the Bank of England governor Mervyn King said that the UK economic recovery will be slow. The UK currency was unable to rally above the $1.6500 level on Thursday and then weakened steadily through the course of the day with lows around 1.6230.
UK stocks declined for a third day this week, led by banking shares, as the Federal Reserve disappointed investors by refraining from increasing bond purchases. Bank of Ireland Plc slumped 7% in Dublin trading, as the International Monetary Fund warned that the nation’s lenders face losses of as much as $49 billion through 2010.
The benchmark FTSE 100 Index declined 0.6% to 4,252.57 in London and the stock market has decreased 5.6% from June 1st, amid speculation that share prices have outpaced the outlook for earnings growth after the gauge reached 30.7 times its companies earnings. In the FOMC statement on Wednesday, policy makers doused speculation that it will pump more money into the economy to hold down interest rates.
The Pound was able to avoid a test of key technical support in the $1.6200 region and rallied back towards $1.6400 in New York, as volatile trading conditions persisted. The UK currency also found key support under 1.1670 against the Euro, as there were no economic factors or official comments to guide the Pound during the course of the day.
The UK currency also fell against the Swiss Franc and the Australian Dollar, as the FTSE 100 index slipped 1.6% in London, the most in three days. The Pound was also unsettled to some extent by concerns surrounding fiscal debt, amid comments from the Bank of England governor Mervyn King on Wednesday, but the impact faded during U.S trading as equity markets rallied.
There will be a much greater chance of a change in sentiment if there is a sustained deterioration in global risk appetite. Confidence held relatively firm in early Europe on Friday and this helped Sterling hold near the $1.6400 level against the Dollar. King said on Wednesday that the U.K’s path out of recession may be a “long, hard slog”.
Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd, said that “the market’s positioned long sterling and lower equities provide a good excuse to take some profit. The Pound hasn’t performed since Mervyn King spoke on Wednesday.” Kings comments have clearly weighed on Sterling sentiment, while the Organisation for Economic Cooperation and Development said that the UK gross domestic product will drop 4.3% this year.
EUR/USD
The Dollar retained a firm tone in Europe trading on Thursday and tested levels just below $1.3900 in New York, as Euro sentiment was generally weaker, although moves were limited with the Dollar still finding it difficult to gain strong support. Fears over underlying reserve diversification away from the Dollar will continue to undermine sentiment, while expectations persist that interest rates will remain low.
U.S initial jobless claims rose to 627,000 in the latest week from a revised 612,000 previously, while continuing claims rose to near 6.74 million. The unemployment data has been showing signs of improvement and the latest release will cause some fresh anxiety over the labour market situation. Elsewhere, U.S gross domestic product in the first quarter was revised slightly to show a modest improvement.
Data Released 25th June
EU 10:00 Industrial Orders (April)
U.S 13:30 Gross Domestic Product (Q1 Revised)
U.S 13:30 Initial Jobless Claims (w/e 19th June)
written by Adam Solomon
Related posts:
- The Pound declines against the Dollar but rises to a two week high versus the Euro despite a 0.4% drop in retail sales
- The Pound declines against the majors, after retail sales unexpectedly drop in May
- The Dollar declines against the majors following a second monthly drop in U.S Nonfarm payrolls
- The Pound declines against the majors as Nationwide report a sharp drop in house prices
- The Dollar declines against the majors following a further drop in the U.S stock market
