The decline of the Pound continued to gather momentum yesterday as the UK currency is poised for its biggest weekly fall in over two years against the Dollar as the liquidation of high-yielding currencies has sent the Pound plummeting alongside the Australian and New Zealand Dollars. Despite a stronger-than-expected report on UK retail sales in July, the Pound failed to find any support against the U.S currency as the appetite for risk aversion increased amid the fallout from widening credit losses tied to U.S subprime loans. In addition, the dovish tone of the minutes from the Bank of England’s August meeting has prompted speculation that UK interest rates may have peaked at 5.75%. Falling rate-hike expectations combined with the unwinding of so-called carry trades is likely to hamper Sterling over the coming weeks, particularly as the selling of high-yielding currencies continues.
The Euro remained largely unchanged against the Dollar yesterday, snapping a three day losing streak while the single currency managed to make some gains versus the Pound as the turmoil surrounding financial markets won’t have a bearing on the ECB’s monetary outlook. Following a particularly hawkish rhetoric from the chairman of the Central Bank, Jean-Claude Trichet, earlier this month, the governing council are expected to lift interest rates by a further 25 basis points to 4.25% in September. However, the ECB have injected an unprecedented amount of liquidity into European money markets over the past week as stock markets tumble and concerns deepen that a credit crunch sparked by the U.S subprime mortgage crisis will curb company earnings and slow economic growth.
The renewed strength of the U.S Dollar continued to gather momentum yesterday amid increased volatility in the financial markets, which saw the Dow plummet 340 points before consolidating at the close of trading last night. The sharp fall in credit and equity markets combined with the fundamental lack of liquidity at present has forced many investors to liquidate positions. As a result, the uncertainty surrounding the market increases appetite for risk aversion, which has sent the U.S Dollar higher against every major currency excluding the Japanese Yen. However, the sharp increase in volatility has prompted further speculation that the reversal of earlier losses in the stock market will influence the Federal Reserve to eventually cut U.S interest rates. Although the Fed have yet to publicly announce the concerns surround market volatility, investors are currently pricing in a 75% chance of a rate cut by the end of the year. Elsewhere, the Dollar remained resilient despite news that U.S housing starts had a hit a 10-year low in July while manufacturing output in the Philadelphia region fell below initial forecasts.
Data Released 17th August
U.S 15:00 Michigan Sentiment (August Prelim)
written by Adam Solomon
Related posts:
- The Pound climbs against the majors as UK unemployment records the biggest drop in nearly two years
- The Pound declines heavily against the majors as UK inflation falls to 2.7% in January, achieiving the biggest monthly drop in four years
- The Euro gains against Sterling following the biggest increase in German Producer Prices in 24-years
- The Dollar finds some support against the Pound as new home sales show the biggest monthly rise in 14-years
- The Dollar plummets as the Philly Fed Index posts the first decline in manufacturing activity in over 3 years
