Sterling headed for weekly loss against euro

The pound rallied against the single currency yesterday and reversed some of the previous day’s losses, as equity markets rose on the back of the government’s plan to insure banks’ toxic assets. The British government announced a scheme under which it could end up insuring more than £500 billion of bad assets in an attempt to get lending flowing again, with tentative signs showing that the worst of the banking crisis may be passing. The FTSE 100 responded well to this, boosting demand for riskier currencies, with sterling being one of the major beneficiaries.

There are no major announcements due in the UK today, whilst the eurozone reveals their Consumer Price Index figures this morning, giving an indication of inflation at present.

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

Little movement on cable

Sterling gained a little ground against the US dollar yesterday, helped by rising stock markets and the British government’s plan to insure against toxic assets for banks. The scheme, which is designed to remove uncertainties about the banks’ capital positions and enable them to focus on lending to customers again, could end up with the government insuring around £500bn in toxic assets held by UK banks. The news helped push shares higher, with the UK's FTSE 100 index rising by 2.2 percent, bolstering demand for riskier currencies such as the pound.

Data released in the US yesterday afternoon showed initial jobless claims reached a 26-year high, while sales of new homes fell 10.2% in January, to the lowest level since 1963. Figures also showed that durable goods orders were down 5.2% last month, and equity markets began to fall again following these releases, dragging the pound lower against the dollar.

There are several announcements taking place in the US today, including Gross Domestic Product and Real Personal Consumption Expenditures at 13.30 GMT. The dollar has continued to strengthen back over the pound this morning as investors are apprehensive about the release of this data.

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

Poor US data ignored as risk aversion spreads

The euro strengthened over the dollar by 0.23 cents yesterday to close at 1.2741. Early in the session rising stocks in both Europe and the US fueled risk appetite and investors bought the euro. Later in the day however, new US Home Sales figures were announced and showed that there were 309,000 fewer sales in January than December, a fall of 10.2%. This reversed the performance of US stocks and the dollar pared it's gains as risk aversion returned. This was by no means the only major announcement yesterday though, the amount of Continuing Jobless Claims in the US rose to 5.112 million, Durable Goods Orders fell by 5.2% in January and 667,000 new Americans registered for unemployment benefits. However on all this negative news, the dollar failed to be weakened significantly which shows that exchange rates are not been derived off fundamentals.

In today's trading the dollar has strengthened back over the euro ahead of the announcement of Consumer Price Index data and Unemployment Rate data in the eurozone. In the US, GDP Annualized and Real Personal Consumption Expenditure are both announced as well as the Chicago Purchasing Managers' Index and the Reuters/Michigan Consumer Sentiment Index.

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

Morning exchange rates

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