The Pound shrugged off the unanimous MPC vote for no change on interest rates yesterday to hit a 3 ½ month high on the Dollar and a 2 month high on the Euro this morning.
Whilst U.K retail sales data released this morning at 09:30GMT was slightly under forecast at 0.2% rather than 0.3%, the news is unlikely to impact much on Sterling’s gains as concerns over Euro zone debt and the U.S economy reached a tipping point last night. “People know that retail sales are not going to be fantastic, there may be a knee-jerk reaction in sterling but it won`t be lasting,” said Kathleen Brooks, research director at Forex.com.
Confidence in the Euro and Dollar was at a real low this morning, allowing the Pound to edge forward as the less risky currency of choice at present. There is little expectation of sustained gains however, especially if quantitative easing is decided upon as the best course of action to ease the U.K’s fiscal problems. “Our economists think more QE is coming, and the anticipation rather than the actuality is where the pound could feel the most pain,” BNP Paribas SA strategists including Ray Attrill in New York wrote in a note to clients. The last set of U.K data is released tomorrow in the form of public sector net borrowing, with any numbers on forecast probably enough to support sterling as we enter the weekend.
The Euro was pegged back by the Pound this morning as confidence in the single currency waned after a week of poor Euro zone data and no change on the resolution of the debt crisis there. Fortunately for the Euro, even softer data coming out of the U.S had similarly dampened the Dollar’s prospects and the single currency was able to notch up some gains on its U.S counterpart. With only German Producer Price Index at 07:00GMT tomorrow for Euro zone data, eyes will be on the raft of U.S data today including unemployment claims and house data for signs of the state of the U.S economy and whether short term backing will be provided for the single currency or greenback. In all likelihood if recent form is anything to go by, there will be little demand for either in the short term, which is supporting the Pound against the Euro this morning.
The Euro zone current account deficit was far worse than expected yesterday at -7.4 Billion, whilst core CPI (consumer price index) was also worse than expected. If the data wasn’t complimented by similar uncertainty in the U.S the Euro could have been affected more than it was. As it is the currency continues to trade in tight ranges, losing out to the Pound this morning in what it probably another swing in the current trend of uncertainty.
The Dollar fell to a 3 ½ month low against the Pound and was down on the Euro this morning as investors started to lose patience with the sluggish U.S economy after soft data continued to dent investor confidence.
The Dollar index, which measures the Dollar’s performance against a basket of six currencies, was under pressure this morning ahead of a raft of U.S data today that could prevent a further slide or more than likely support the current downward trend. “The dollar index remains range-bound, but seems to be slipping toward the lower end of that range, and is testing trend line support back to the May lows,” said currency strategists at RBC Capital Markets. “With the dollar index unsteady, upcoming U.S data is in focus,” they added. The Dollar could yet reverse the trend if inflation is as expected. “If inflation comes in around consensus, it’s really hard to make the case for QE3 near term,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It makes it harder for the Fed to ease monetary policy further and so is supportive for the U.S. dollar.” All eyes will be on U.S consumer and employment data this afternoon for indications of short term movement on the U.S currency.