GBPEUR/GBPUSD
Following on from last week, the Pound recorded its longest run of weekly advances against the Euro in over four years, bolstered by gains on Thursday, after the Bank of England Governor Mervyn King said that the UK recession may be easing. The UK currency found support close to the $1.6300 level against the Dollar on Friday and rose sharply higher, resisting a further test of support around 1.6200.
As the Dollar came under renewed selling pressure, the Pound pushed to a high above $1.6550, while the UK currency also strengthened towards the 2009 highs near 1.1860 versus the Euro. The Pound has continued to gain support from a relatively firm tone in risk appetite, despite the political unrest in Iran, and a lack of confidence in the major currency alternatives.
There was no significant domestic developments on Friday with confidence in the UK economy still providing underlying support for Sterling, especially with the fundamental lack of confidence in the Euro-zone. The Pound rallied from close to the lowest level in a week against the Dollar, after Mervyn King said in a newspaper interview that policy makers are seeing evidence the economy’s contraction is beginning to “flatten off”.
Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd, said that “King was more upbeat that he has been previously, and that has come as a surprise to the market. It’s a major leap of faith for him. The market is taking it seriously and has gone and bought Sterling.” The Pound rose 0.5% against the Euro to a high of 1.1865, to record the longest stretch of weekly gains since April 2005.
King also said that the UK will “certainly come though” its worst recession in a generation and return to “an ordinary business cycle”. The Bank of England said in London on June 17th that “the risk of a continued sharp contraction” has “receded somewhat”. Unemployment rose in May by less than economists forecast but retail sales unexpectedly declined, recording a 0.6% loss.
In addition, the FTSE 100 Index rose by the most in almost three weeks, boosting demand for the Pound and higher-yielding assets. UK stocks climbed, trimming the first weekly loss in five weeks, as a gauge of mining shares rebounded from the longest losing streak in six months and homebuilders rallied. The benchmark FTSE 100 index climbed 1.5% on Friday, paring the loss for the week to 2.2%.
The Pound has advanced 3.8% against the Euro and 6.7% versus the Dollar over the past month, as evidence builds that the UK economy is through the worst of the recession and investors are tempted back to UK assets. Taylor Wimpey Plc, Britain’s largest homebuilder, said on Thursday that its domestic order book surged 73% from the end of last year, as buyers returned to the housing market.
European Union leaders are seeing signs of a “sustainable economic recovery” and ruled out further stimulus measures. The UK economy shrank 1.9% in the first quarter, and the International Monetary Fund still expects gross domestic product to contract by 4.5% this year, the most since 1931.
Nevertheless, the Pound is performing well against almost all of the 16-most actively traded currencies this morning, as a report from Rightmove Plc showed that UK home sellers lowered asking prices in June for the fist time in five months.
EUR/USD
The Euro found support below $1.3900 against the Dollar on Friday and generally maintained a slightly firmer tone throughout the course of the day, even though it struggled to sustain its early momentum. There were no significant data releases to guide the markets during the day but risk appetite was firmer, which tended to erode Dollar support.
There were also warnings from Standard & Poor’s that California’s debt credit rating would be downgraded, which undermined Dollar sentiment. The Euro advanced towards the pivotal $1.4000 level in New York, amid caution ahead of the Federal Reserve interest rate decision on Wednesday. The focus in the Euro-zone will be the German IFO sentiment index this morning and the most likely outcome is that the index will rise further.
European Central Bank Governing Council member Ewald Nowotny said that the bank is likely to keep interest rates steady at a record low for at least the remainder of the year. The ECB won’t substantially alter its assessment of the economic outlook and “therefore I don’t see a likelihood for rate changes” Nowotny said in an interview in Vienna of Friday.
Data Released 22nd June
U.K 00.01 Rightmove House Prices (May)
GER 09:00 Ifo Index (June)
written by Adam Solomon
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