Pound weakens against euro on investor concerns

The pound continued its slide against the single currency yesterday as data showed the UK economy shrank an unrevised 1.5 percent in the last quarter of 2008, confirming the deep recession we are currently facing. Losses then steepened after the head of sovereign ratings at Standard & Poor's said he expected more downgrades than upgrades this year, removing the risk appetite in the market that had been apparent at the start of the week. Bank of England policymaker Kate Barker later said that British economic growth may not restart until the end of 2009.

Trading has been quiet so far this morning, following the release of Nationwide’s housing survey revealing a further 1.8% decline in house prices this month, bringing the annual rate of change to -17.6%. In the eurozone this morning consumer, economic and industrial confidence data is released, whilst there are no further economic announcements due in the UK today.

GBPEUR: 1 week chart. Click on graph to enlarge.

Cable falls as economic outlook remains poor

Sterling fell sharply against the US dollar yesterday, losing more than 3 cents following GDP data which confirmed the UK economy shrank by an unrevised 1.5 percent in the last quarter of 2008, confirming Britain is in the midst of a deep recession. The dollar also gained support as investors sought its safe haven appeal following falls on Wall Street and more gloomy economic data. Data revealed US existing homes sales are at their lowest levels in almost 12 years, sparking fresh jitters about the economy and sending equities sharply lower.

The US dollar was also helped by the falling yen, amid growing concern about the Japanese recession. Usually the yen would be used as a safe haven currency during times of market volatility, but the current problems facing the Japanese economy have encouraged investors to move from the yen to the greenback.

There are no significant economic releases due from the UK today, while home sales, durable goods orders and jobless claims figures are released in the States this afternoon. President Obama will also be presenting his budget to Congress later today.

GBPUSD: 1 week chart. Click on graph to enlarge.

Risk aversion sees dollar stregthen over euro

The dollar strengthened over the euro by 1.23 cents yesterday to close at the 1.2720 level, as risk aversion spread amongst investors and the dollar was heavily bought as a safe haven. An address by President Obama late on Tuesday did little to reveal how his administration planned to stabilise the economy. Figures released also showed that existing home sales fell by 5.3% in the US in January, which led to a fall in the price of stocks and promoted risk aversion. The euro's position was also undermined by news that Germany's economy contracted by 2.1% in the fourth quarter of 2008.

In today's trading the euro has come back as risk aversion abated after US stocks pared their losses in yesterday afternoon's trading. Also, German consumer confidence, as measured by Gfk, was shown to have improved this morning, and the rate at which German unemployment is increasing also slowed. Later today Consumer, Economic and Industrial Confidence data is released in the eurozone, whilst in the US, Durable Goods Orders, Initial Jobless Claims and New Home Sales figures are announced. Also taking place in the US today is the release of Barack Obama's budget report, which will give investors a clear indication about the future spending plans of his administration.

EURUSD: 1 week chart. Click on graph to enlarge.

Morning exchange rates

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