Rise in U.K Consumer Confidence supports GBP against USD

March 4th, 2010 by Toby

US Dollar:
The Dollar was down against the Euro yesterday as upbeat news from the Euro Zone saw investors move away from the Greenback and into the Euro on an increased appetite for risk. However, this morning sees the Dollar marginally up against both the Euro and Sterling.

The euro dropped to $1.3665 as of 6:30 a.m. in London from $1.3697 in New York yesterday, when it climbed to $1.3736, the strongest since Feb. 17. Whilst the dollar is the safe option between Sterling and Euro, on the global market the Dollar is edging downwards as investors favour higher yielding currencies such as the Yen as traders added to bets the Federal Reserve will keep interest rates near zero to sustain growth in the world’s largest economy. Recent job losses figures from the US were worse than expected and as such this has dented the positive sentiment surrounding the Dollar of late, “As long as job losses continue, the Fed can’t start hiking interest rates,” said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a foreign- exchange unit of Japanese trading house Itochu Corp. “This rate view will keep a lid on the dollar.”

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Pound:
Sterling received a small boost against the majors this morning as a survey into UK services sector activity helped U.K consumer confidence to a new two year high. The boost was felt most against the US Dollar, up by 0.7%, while trading remained in tight ranges against the Euro. Whilst this caused speculation the U.K economy may recover faster than expected, there was no clear rush of investors backing the pound as the potential for a ‘double-dip’ recession remained. “The pound’s recent rebound doesn’t necessarily suggest sustained strength, said Vassili Serebriakov, a currency strategist at Wells Fargo Bank in New York. It’s really more of a correction from a very sharp move lower rather than a reversal of market bias at this point,” he said.

The Pound remains under pressure with the U.K budget deficit 13% of GDP, even worse than that of Greece at 12.7%. Whilst the U.K’s economy is more competitive than Greece with most expecting the nation to solve their own fiscal debt problems, the upbeat stance and relief that the U.K didn’t need to get involved in any bailouts to E.U nations is now slowly being replaced with opposing ideas that the security of E.U nations wouldn’t necessarily be a bad thing, especially with the current state of the Pound.

Euro:
After reaching a two week high against the Dollar, the Euro has slipped away as investors hold off from Euro Zone assets. “Given underlying Greece woes, the ECB is unlikely to become proactive about exit strategies,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “The euro may struggle in extending gains as it comes closer to $1.38-1.4 levels.” The outcome of the Euro hinges on the effectiveness of the austerity package announced yesterday by the Greek Prime Minister as well as the level of support coming from other Euro Zone nations. So far talks of a bailout have been met with a lukewarm reaction from other EU nations. This reluctance to support Greece will simply see downward pressure on the Euro as a concrete plan for Greece moves further and further on to the horizon. Morning trading sees the Euro slightly up on GBP/EUR 1.1014 and down on the Greenback at EUR/USD 1.366.