The Pound prevented a slide against the Euro this morning after the risk of Euro zone debt contagion weighed on the single currency, but was still down from earlier in the week and lost over 1% against the U.S Dollar as the Bank of England cut its economic growth forecast. “Sterling is caught between a rock and a hard place. If the market is really concerned about negative conditions in the euro zone, sterling gets caught in the cross fire,” said Paul Mackel, director of currency strategy at HSBC Markets. “The message from the BoE is it`s going to be a long fight ahead, the economy is going to be sluggish. The only thing that makes this better is that sterling is in an ugly contest with the euro and dollar. It`s not as if the UK is weak and the rest of the world is strong.” A week of poor U.K data including manufacturing output on Tuesday has put pressure on sterling, and even in the face of debt concerns in the Euro zone and U.S, pound buyers are fairly scarce at present, with only the prospect of gilt sales enough to support the ailing U.K currency. “One of the areas where the pound could benefit more is if the gilt market continues to do well in the coming months and years,” said Peter Kinsella, currency strategist at Commerzbank. “When you have sovereign concerns in peripheral Europe and perhaps even Italy and Spain, the gilt market doesn`t look like such a bad place to be.”
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The Euro was holding its own against the Pound and U.S Dollar this morning but was still tentative as Euro zone debt concerns continued to weigh on the single currency. “The ongoing sovereign debt problems are making investors extremely nervous about taking exposure to risk assets. You can`t buy the dollar or the euro, so investors are shifting into the Swiss franc, the yen and gold for safety,” said Tsutomu Soma, senior manager at Okasan Securities. “I feel further stronger measures by the Fed, the BOJ and other monetary authorities are needed. They need to show their determination to change this risk adverse mood,” Soma said. Whilst safe haven currencies such as the swiss franc and yen continue to benefit from risk averse sentiment in the market, the Euro and Dollar remain under pressure in equal measure, as together with the Pound they continue to trade in tight ranges with uncertainty present in Europe and the U.S. “Especially after the U.S. sovereign debt downgrade, investors and funds in general are avoiding taking risks, prompting heavy flows into safer currencies and assets, while the dollar and the euro are being hit,” said Makoto Noji, a senior strategist at SMBC Nikko Securities.
The Dollar was up on the Pound this morning as the Bank of England economic growth forecast was altered this week following a raft of poor U.K data. Sustained gains were prevented as the BofE governor Mervyn King waived off calls for further quantitative easing but it was not ruled out. The Dollar was still in a precarious position this morning, with losses recorded against the Euro as investor confidence remained low following Standard & Poor’s decision to downgrade the U.S’ credit rating. Earlier this week the Fed said officials have “discussed the range of policy tools” to strengthen growth, whilst agreeing to keep interest rates on hold for at least two years. “The market is likely to keep pressing the Fed to come up with more accommodative policies amid a slowdown in the economy,” said Hitoshi Asaoka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “The market is concerned about some dollar weakness.”
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