Pound:
Sterling has started a new week trading down against all the major and minor currencies. The BoE monetary policy committee face a difficult decision on whether to hold off on quantitative easing (money printing) or increase it again when it meets on Thursday to also discuss interest rates. The market has now placed more concern on the UK this week which will see a big round of economic data and with recent growth data showing a tiny recovery so far, there are concerns the economy could slide back into negative. This has provided uncertainty over whether the BoE will end QE which had previously been expected.
In more positive news surrounding the housing market the centre of economics and business research has revised it’s forecast of 2-4% made last month to a 6% rise in UK house prices for 2010. In actual economic data, manufacturing PMI has risen above expectations of 54.1 to 56.7 showing further expansion in the sector. Lending data unfortunately failed to produce a similar result with mortgage approvals down by 3k to 59k and net lending staying as forecast at 1.2B. Construction PMI is due tomorrow at 9.30am and expected to show further contraction at 48.3.
US Dollar:
The Dollar was up against Sterling and the Euro this morning after U.S data suggested the economy there was improving substantially. The U.S Commerce Department said on Friday that the U.S economy has grown by 5.7% from October to December. This expansion was better than expected, its fastest pace in more than six years, and enough to gather momentum for the U.S Dollar, seeing gains over an already weakened Euro and even over the recently strong U.K Pound.
Strong house sales data in the U.K weren’t enough to maintain Sterling’s gains and the Dollar, on the back of this positive U.S data, pushed back GBP by over a cent. U.S manufacturing was also positive, helping USD make further gains on the Euro, which is already suffering with fiscal debt concerns spreading from Greece to other countries in the Euro zone including Portugal.
The first day of the month brings significant data including American ISM Manufacturing PMI later this morning that could consolidate USD’s recent gains if positive. GBP/USD 1.5908, EUR/USD 1.3905.
Euro:
The Euro was down again on the U.S Dollar but recovered some ground on Sterling as rhetoric from the U.K Treasury suggested the U.K was at risk of a deficit crisis similar to Greece. There were calls for a plan to keep interest rates lower for even longer in the U.K. This was enough to cause investor jitters in the Pound and see previous Euro losses against it reversed.
Debt concerns in the Euro zone still remain however, and if U.K data continues to be positive the chance of a further correction and Euro weakness increases. The Euro continues to lose ground on the Dollar after positive U.S data showed growth there was the highest in six years over October-December. The single currency is in danger of losing its status as the world’s reserve currency after the Dollar as investors are pulling out of it at an increasing rate. The Euro has lost 8.4% since November, with billionaire George Soros saying recently that there was “no attractive alternative” now to the Dollar. As traders continue to sell off Euro zone holdings, the single currency can only be under more pressure, while pessimistic rhetoric in the U.K seems to be its only reprieve, causing investor uncertainty in the U.K as well as in Europe. GBP/EUR 1.1446, EUR/USD 1.3905.
Quote of the Day
A day without laughter is a day wasted – Charlie Chaplin
