Euro comes under broad selling pressure

The euro came under broad selling pressure yesterday as European share prices fell and there was a record contraction in the eurozone economy during the fourth quarter of last year. The eurozone economy contracted 1.5% on an annualised basis, which was revised downwards from an expected 1.3%, confirming the current economic plight that many European countries are finding themselves in. It was also confirmed that UK manufacturing output fell by a record amount year-on year in February according to the Office of National Statistics, with output falling 0.9% in the month. However, the fall was less than the 1.5% many were expecting, in a sign that the recession may be bottoming out.

In early trading today, the pound is hovering around the 1.1100 mark as the euro remains on the back foot following yesterday’s poor performance. Both the pound and the single currency will take further direction from equity markets, as well as factory orders data being released in Germany, and the British Retail Consortium releasing their shop price index.

Pound trades mixed against US dollar

The pound lost some ground to the dollar yesterday morning, after weak UK manufacturing data and a 1.2 percent drop in British equities signalled a fall in risk appetite, keeping sterling under pressure. However, by the end of the day the pound was little changed against the dollar, after it recovered from earlier losses on the back of a weaker euro, which was sold off yesterday amid falling European share prices and GDP data showing a record contraction in the eurozone economy in the fourth quarter.

The Bank of England are due to announce their next interest rate decision tomorrow, although the announcement is not expected to have a significant impact on the pound, since the central bank is unlikely to cut rates further. British interest rates currently stand at a record low of 0.5%.

This morning the BRC Shop Price Index is due from the UK, while Mortgage Applications, Wholesale Inventories and the minutes from the Fed’s FOMC meeting are released in the US this afternoon.

Euro loses ground to US dollar

The dollar strengthened against the euro yesterday and has continued to gain ground to hit a 1-week high in early trade this morning, on the back of a fall in global equities, among those Tokyo's Nikkei which lost 2.8 percent. Many analysts are predicting that the euro/dollar pair could hit 1.30 by the end of the week if equity markets continue to fall.

The euro was also undermined by data released yesterday which showed that the eurozone economy recorded its largest ever quarterly fall in the fourth quarter of 2008. Additionally, Ireland released their budget plan yesterday which indicated the creation of a toxic assets agency. This resulted in a weakening of the euro and prompted investors to flock to the safe haven of the US dollar, despite the current grim state of the US economy.

Investors are also reluctant to buy riskier currencies at the moment due to the upcoming release of US corporate profits, which are expected to show a fall of approximately 37% in first quarter earnings for S&P 500 Companies.

This morning, Germany released their trade balance figures which were better than anticipated, however despite this the dollar has continued to rise against the euro. Germany will also be announcing Factory Orders at 11.00 BST. In the US, MBA Mortgage Applications will be announced at 12.00 BST. Also of particular interest will be the release of the FOMC Minutes in the US at 19.00 BST, which are released by the Board of Governors of the Federal Reserve and indicate future US interest rate policy.

Weak data undermines New Zealand dollar

The New Zealand dollar gave back some of its recent gains against sterling yesterday, as weak domestic data pointed towards a deepening recession in New Zealand. The NZIER business opinion survey revealed sentiment was at a 35 year low, with expectations that further economic weakness was to come. This has also led to speculation that the Reserve Bank of New Zealand may have to lower interest rates further. Demand for the high yielding kiwi was also dragged lower as markets again became nervous over the outlook for the banking sector.

Aussie dollar range bound despite rate cut

The Australian dollar remained within recent ranges against sterling yesterday, despite an initial strengthening after the RBA announced a 25 basis point rate cut. The effectiveness of the rate cut was muted, with many of the major banks refusing to pass on some, or all, of the rate cut to consumers. Meanwhile, the pound managed to hold its ground despite UK manufacturing output for February falling by 0.9 percent. The fall was less than forecast but did highlight the continuing weakness in the UK economy. The aussie has failed to make further inroads as global share prices continue to dip, making investors wary of taking on too much risk.