GBPEUR/GBPUSD
Good Morning,
The Pound remained largely unchanged against the Dollar yesterday, while the UK currency recorded gains against the majority of the 16-most actively traded currencies, after a report from the Confederation of British Industry showed that UK retail sales rose to the highest level in 15-months. A survey of retailers showed a net 3% reporting higher sales in April, compared with 44% saying that sales had fallen in March.
An index of retail sales rose to the highest level in more than a year, as stores overcame the recession and the rising unemployment rate. Recent economic data has indicated that the worst recession since Margaret Thatcher came to power in 1979 has started to ease, as shoppers sustained spending, even after the number of people out of work exceeded the highest level since 1997.
Andy Clarke, chairman of the CBI Distributive Trades Panel said that while the figures were encouraging, they did not mark a recovery on the high street. “With unemployment rising and growth in average earnings down, consumers remain very wary and retailers themselves think that sales will drop again in May.”
The Chancellor of the Exchequer Alistair Darling said last week that he expects the UK economy to recover by the end of the year. However, the Pound was rocked amid speculation that Moody’s investors services will cut the UK’s AAA credit rating, following concerns over the state of British finances. The International Monetary Fund still expects the economy to contract this year at the fastest pace in sixty years.
The Pound held on to recent gains made against the Euro yesterday, despite a drop in the UK stock market, as speculation surrounding the global swine-flu outbreak and the implications for the global economy. Banking stocks also slid on concern they may need to shore up their balance sheets. The FTSE 100 Index decreased 1.7% on the day, as HSBC Holdings Plc lost 2%, following reports that Bank of America Corp and Citigroup Inc may be forced by regulators to raise more capital.
Global financial markets will remain nervous until there is more clarity over the threat posed by the swine flu outbreak and the high-yielding currencies have all declined against the Pound, apart from the South African Rand. The Rand also rose to the highest level against the U.S Dollar since October 3rd, on speculation the central bank will slash interest rates again this week to help fuel spending and bolster growth.
The Pound will continue to gain ground against the majority of the majors if there is an improvement in risk appetite, but there will still be very important risks associated with the escalating debt burden and volatility is likely to increase. A slightly more positive stance towards the global economy has seen the Pound test resistance levels above $1.4700 against the Dollar this morning.
EUR/USD
The overall improvement in risk sentiment also saw the Euro advance significantly against the U.S Dollar last night. The single currency found support below the $1.3000 level, but confidence recovered later in the day, amid an increase in risk appetite, which curbed demand for the Dollar. European stocks initially declined on concerns that banks may need to raise additional capital and the outbreak of swine flu will hamper an economic recovery.
Elsewhere, European Central Bank governing council member Lorenzo Bini Smaghi displayed a reluctance to cut interest rates towards zero per cent. He also said that buying government bonds would pose a problem to the Central Bank. “Bringing the main policy rate too close to zero would risk hampering the functioning of the money markets as it would reduce the incentives for interbank lending”.
Although Bini Smaghi stressed that his comments were “in no way a pre-judge” to the ECB policy meeting on May 7th, the tone of his statement indicates that the committee are still split on the best way to handle the worst recession since the end of the Second World War. He did express preference for measures already implemented by the ECB, aimed at relaxing banks’ collateral and funding constraints.
The Euro will remain very sensitive to policy comments ahead of the governing council meeting next week and any suggestion that the bank will not pursue quantitative easing methods would help strengthen the Euro. As global risk appetite improved, the single currency moved towards highs around $1.3200 against the Dollar, ahead of the FOMC interest rate announcement this evening.
The Dollar fell against the majority of the higher-yielding currencies, after consumer confidence in the U.S jumped by the most since 2005 in the figures for this month. The Conference Board’s index of sentiment rose more than initial forecasts to a five month high, as stocks rallied, mortgage rates dropped and Americans anticipated more jobs would become available.
Elsewhere, a seperate report showed that the decline in home prices in 20 U.S cities slowed in February for the first time since 2007, with the S&P;/Case Shiller index of prices posting an 18.6% decline from the same month a year previously. The Dollar remains predominantly sensitive to swings in risk sentiment, after yesterday’s reports signaled that the grip of the recession is loosening.
Data Released 29th April
EU 09:00 M3 / 3 Month Moving Average (March)
EU 10:00 EC Business Climate (April)
EU 10:00 EC Economic Sentiment (April)
- Consumer / Industrial / Services
U.S 13:30 Gross Domestic Product (Advanced Q1)
U.S 19:15 FOMC Interest Rate Announcement
written by Adam Solomon
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