Sterling hit a five month low of €1.1315 against the euro this morning following UK data revealing a decline in consumer confidence, but gained against the dollar as the minutes from the Fed’s latest meeting all but confirmed expectations of additional stimulus measures in the near term.
Although hitting a low early on, the pound has recovered slightly in early afternoon trade whilst remaining within a comparatively tight range. Mixed labour market figures, slightly worse than expected consumer confidence postings and the news that Standard Chartered Bank will be launching a $5.3billion rights issue (forcing overseas investors to buy the UK currency) have not given much direction. Investors are waiting for larger macro policy decisions from central banks (particularly on the question of QE) before they move away from current positions.
Also of note today has been the single currency’s inability to break through the glass ceiling of $1.40 at what is now its fourth time of asking. This barrier appears to be quite a large watershed, dividing opinion on where the US dollar and the euro will go. If the resistance level persists for too much longer, we could see a resurgence in support for the greenback and the exiting of long positions in the sixteen-nation currency. However, with QE2 increasingly looking like a question of ‘when,’ not ‘if’ in the US, the more likely outcome will be a breakout to $1.43/45 for the euro when the Fed restarts its programme of “printing money.”
Tom Hampton
Analyst – Caxton FX
