Sterling initially struggled yesterday following an unsourced report in The Daily Telegraph of the risks to Britain's AAA credit rating, but the pound still finished the day higher against the euro. Investors quickly realised that the report referred to comments made by Standard and Poor’s last month, with no additional news being reported yesterday.
The market switched their attention to the Bank of England minutes, with no major surprises coming there. The Monetary Policy Committee voted 8-1 to cut rates earlier this month, with a unanimous decision to ask the Treasury for the powers to boost money supply – it is now expected that the Bank of England will embark on the path of quantitative easing as of next month. However it was the single currency that was under pressure in the afternoon, with concerns mounting that the region’s banks will report increasing losses, especially considering the economic plight in eastern Europe at present and the affect this may have on parent companies based in western Europe.
There are no major announcements due in the eurozone today, whilst money supply data is released in the UK this morning.
Thursday 19 February 2009
Pound weakens against the dollar following dovish BoE minutes
Sterling fell to a two-week low versus the dollar yesterday after dovish minutes from the Bank of England showed a unanimous vote to begin unconventional monetary easing measures. The Bank of England cut interest rates to 1% last month, however the minutes have suggested that a further interest rate cut will take place.
In the US, minutes from the Fed’s last meeting showed central bankers are growing increasingly concerned about a deepening recession. The FOMC now predicts that the US economy may contract by 0.5%- 1.3% this year, much worse than previous forecasts made in October.
Official figures released showed that US housing starts and building permits plummeted to record lows last month. Meanwhile, the number of permits issued for new buildings also fell to an all-time low, down 4.8% to 521,000 units. The data was announced on the same day as news that President Barack Obama’s plans to deal with the housing crisis and reduce foreclosures will help as many as 9m borrowers. Obama unveiled the $75bn plan in Mesa, Arizona, a suburb of Phoenix yesterday.
In the US, minutes from the Fed’s last meeting showed central bankers are growing increasingly concerned about a deepening recession. The FOMC now predicts that the US economy may contract by 0.5%- 1.3% this year, much worse than previous forecasts made in October.
Official figures released showed that US housing starts and building permits plummeted to record lows last month. Meanwhile, the number of permits issued for new buildings also fell to an all-time low, down 4.8% to 521,000 units. The data was announced on the same day as news that President Barack Obama’s plans to deal with the housing crisis and reduce foreclosures will help as many as 9m borrowers. Obama unveiled the $75bn plan in Mesa, Arizona, a suburb of Phoenix yesterday.
Dollar strengthens against the euro on Obama mortgage relief plan
The euro briefly fell to its lowest level since late November against the US dollar yesterday, as the dollar strengthened against most major currencies following President Obama’s announcement of a $75 billion mortgage relief plan, which would provide incentives to mortgage lenders to help borrowers reduce their payments.
The Federal Reserve said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking by between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth. This latest outlook update, if true for 2009, would mark the weakest year of economic activity since 1982.
There are no significant announcements due from the eurozone today, while in the US Leading Indicators, Producer Price Index, Philadelphia Fed and Jobless Claims data are released this afternoon.
The Federal Reserve said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking by between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth. This latest outlook update, if true for 2009, would mark the weakest year of economic activity since 1982.
There are no significant announcements due from the eurozone today, while in the US Leading Indicators, Producer Price Index, Philadelphia Fed and Jobless Claims data are released this afternoon.
Kiwi dollar remains in precarious position
The New Zealand dollar remained relatively steady yesterday, but continued to remain in a precarious position as fears of a deepening recession and falling stock markets increased risk aversion. The kiwi is likely to continue to be directed by equity markets for the rest of this week.
Aussie dollar recovers from weekly lows
The Australian dollar recovered from weekly lows against sterling yesterday, after the Bank of England minutes revealed that quantitative easing was probably imminent. The minutes revealed that the policy makers were unanimous in their decision to seek government consent for quantitative easing by buying gilts and other securities. It remains unclear whether the BoE will cut rates again when they next meet in March, but it is clear that going forward alternative methods will become the main tools for monetary easing. Meanwhile other data revealed British factory orders fell at their fastest rate since 1992, adding further misery to the already deteriorating economy. The aussie may be limited in its gains as weak economic data across the globe, and continuing concerns over the financial sector, keep investors wary of taking on too much risk.
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