Pound bounces off lows against the euro

The pound bounced off the lows we saw on Wednesday, as investors took advantage of buying the pound at relatively cheap levels. However, the gains we saw were modest as concerns surround the mounting debt problems the UK is facing up to – indeed the UK may be in danger of losing its AAA credit rating after rating agencies expressed their doubts about Britain’s ability to cope with its public debt. If the UK were to suffer the embarrassment of having its rating downgraded – following Ireland, Spain, Portugal, and Greece who have already suffered downgrades – it would increase the cost of sovereign borrowing, making it more than likely interest rates and taxes would have to go up. In other news, it was confirmed that Britain’s manufacturing output suffered its sharpest decline in the first quarter of this year since records began in 1975. Within the eurozone, industrial new orders came in slightly better than expected, but they are still at historically very low levels.

In early trading today, the pound is back under selling pressure in anticipation of GDP figures released in the UK this morning. We are expecting to see that the UK’s economy has contracted by 1.5% in the first quarter of this year – the third consecutive quarter of contraction. In addition to this, retail sales figures are being released giving an indication of how consumers are fairing in the economic slowdown. IFO release their business climate and expectations survey within Germany this morning.

Pound strengthens against the US dollar

In a quiet day’s trading, the pound strengthened against the dollar yesterday as some investors bought sterling to take advantage of Wednesday’s fall. However, these gains were capped as investors continued to digest Chancellor Alistair Darling’s gloomy budget. He revealed that the UK will run a budget deficit of 12.4% of GDP and have to issue a record £220 billion of gilts for the 2009/10 fiscal year. Following his speech, the pound fell to a three-week low against the dollar, although it recovered to some extent yesterday as investors’ risk aversion calmed.

The pound’s recovery was aided by some positive news from Bank of England policymaker David Blanchflower, who said he could see some tentative signs of recovery in the UK economy. There were also some strong results released by Debenhams who reported half-year profits of £104.2million, causing a surge in retail shares. In addition, Barclays Chief Executive John Varley confirmed that the bank had made a positive start to the year, adding it would lend an extra £11 billion to British households and businesses this year. Finally, a slow in the decline of British factory orders in April from the previous month also improved investor sentiment, although they remained wary of the state of the British economy following revelations that there is a £90 billion black hole at the heart of Alistair Darling’s budget which may require £45 billion of tax hikes and spending cuts over the coming years. The City also reacted negatively to the news that a new 50% tax rate for those earning £150,000 or more is set to be introduced, prompting fears that the UK may no longer be an attractive place to do business in the future.

In America, a report by the National Association of Realtors showing a fall of 3% in the pace of existing home sales to a much lower-than-expected annual rate of 4.57 million units shook investor confidence, as did uncertainty before US regulators reveal their stress test methodology against American banks later today.

In early trading today, the pound has weakened against the dollar ahead some important data released on both sides of the Atlantic. In the UK, Year-on-Year and Quarter-on-Quarter GDP figures are released at 9.30 BST and are expected to show that UK growth has contracted by 1.5% in the first quarter. Important UK Retail Sales data is also due for release at the same time. In America, New Home Sales and Durable Goods Orders data is out 13.30 BST and 15.00 BST respectively, with both expected to affect the dollar’s performance today.

Euro strengthens against the US dollar as Wall Street posts gains

Wall Street shares rose on Thursday as surprising regional bank earnings gave investors hope the US economy was starting to improve, despite fresh evidence of a deep recession that helped drive gold over $900 an ounce. The euro strengthened more than 1 percent against the dollar yesterday to a one week high, after data showed the eurozone's services and manufacturing sectors managed their best performance in six months in April. The good readings suggested that a severe recession in the eurozone was no longer deepening. That data, coupled with a net quarterly profit at Credit Suisse also unveiled yesterday, resulted in an increase in risk appetite which weakened the dollar. Credit Suisse announced double the anticipated first quarter results.

Better than expected bank earnings helped to increase investors’ appetite for riskier currencies, despite grim data announced in the US yesterday including news that applications for jobless claims had risen and that home sales had also fallen. However, concerns over the US government's "stress tests" on 19 major US banks have resulted in increased uncertainty this morning.

In the eurozone Germany will be releasing their IFO Business Climate results this morning, whilst in the US Durable Goods Orders and New Home Sales will be announced this afternoon.

New Zealand dollar remains within recent ranges

The New Zealand dollar remained within recent ranges against the aussie yesterday, but weakened against the pound. Market attention is turning to next week’s interest rate decision by the Reserve Bank of New Zealand, which is expected to result in another 50 basis point cut to 2.5 percent.

Australian dollar weakens as investors take profits on sterling's fall

The Australian dollar has weakened off against sterling as investors took profits on the pound’s tumble after the UK’s annual budget. Sterling's gains were limited as investors remained cautious about the nation’s increasingly grim public finances, as the budget revealed Britain will run a budget deficit of 12.4% of GDP. Also, news that British manufacturing orders continued to fall in April, slightly more slowly than in March but still faster than economists had expected, capped the pound’s movement. All eyes will now be on the release of UK GDP and Retail Sales data this morning.

As the Chancellor of the Exchequer, Alistair Darling, gave one of the gloomiest budgets in recent memory, the pound lost value against most major currencies, falling by nearly two cents against the euro. The Chancellor confirmed that public borrowing would total £175bn in 2009-10, or 12.4% of GDP. The budget is not expected to return to balance until 2017-18. In addition to the dire state of public finances, the Chancellor confirmed that the UK’s economy is set to contract by 3.5% this year – three times worse than what was forecast just 5 months ago – with a forecast for growth in the economy next year of 1.25%. The growth figure for 2010 seems to be bullish, especially when you consider that the International Monetary Fund is forecasting the economy to contract by 4.1% this year, and that the UK’s economy will continue to contract next year by 0.4%. It was also announced that there would be tax hikes, including a new 50% rate of earnings above £150,000, prompting fears of a brain drain out of the UK similar to what was witnessed in the 1970s. Investors reacted to the budget by selling the pound, with sterling falling a cent and a half by the time Alistair Darling had finished speaking.

In other news yesterday, it was revealed that the number of Britons claiming jobless benefits rose in March by 73,000 people, with unemployment rising to 6.7%. The Bank of England Minutes did not spring any surprises, as the votes to keep interest rates on hold at 0.5% and to continue with its quantitative easing plan were unanimous.

In early trading today the pound is bouncing off the lows set yesterday against the single currency, as the Caxton FX analysts suggest there was a slight overreaction to the budget yesterday and we may see a bounce today as investors pick up sterling at lower levels. There is little data out of the UK today, with just the Confederation of British Industry releasing their industrial trends survey. Within the eurozone, industrial new orders, and PMI services and manufacturing data will be of note for investors.

Pound suffers sharp losses against the US dollar

The pound fell by 1.83 cents against the US dollar yesterday after concerns rose about the future health of the UK economy following Alistair Darling’s budget. With Britain entering its worst economic downturn for over 60 years, Darling predicted that the economy would shrink by 3.5% in 2009 and announced that government borrowing would reach £175 billion. With fiscal debt set to increase by 12% of GDP in the 2009/2010 year, there are worries about how well Britain will be able service its obligations in the future. Because of this, one can expect any news of a ratings agency review of Britain’s credit worthiness to be met with a significant selling of the pound. News of the new 50% tax level for those earning in excess of £150,000 also saw sterling come under pressure, as some suggested that a ‘brain drain’ was the last the thing the struggling City needed. One upside of a weak pound is that it should encourage foreign investors to buy the £220 billion of government bonds that the treasury will issue over the coming year to fund their spending plans.

It was announced in the US yesterday that house prices had increased by 0.7% in February, positive news for the American economy where the housing market is very important.

In today’s trading the pound has pared some of yesterday’s losses ahead of the announcement of CBI industrial trends data in the UK and initial jobless claims, continuing jobless claims and existing home sales figures in the US.

Euro strengthens against the US dollar

The euro strengthened against the US dollar yesterday when equity market gains in Europe and the US reduced investors’ appetite for safe-haven currencies. The single currency finished up 0.45% against the greenback at $1.3003, having started the day at $1.2945. Early in the session, US stocks fell after Morgan Stanley reported a second quarterly loss and significantly reduced its dividend. However, a report by the Office of Federal Reserve Housing Enterprise Oversight showing a rise in American house prices in February triggered a rebound on Wall Street, as investor jitters over the state of the global economy eased. As a result, their appetite to buy into the perceived riskier euro increased. Demand for the single currency more generally was also driven by UK Chancellor Alistair Darling’s optimistic budget forecast that the British economy will contract by 3.5% in 2009 before resuming growth next year. His comments sparked a mass sell-off of sterling, with investors looking to the euro and US dollar in particular. The strength of eurozone equity markets was also driven by the news that Credit Suisse Group AG, Switzerland’s largest bank by market value, returned to profit in the first quarter, increasing investor sentiment that the region is well placed to come out of recession.

There are some important pieces of data released today in both the eurozone and America. At 09.00 BST, the European Monetary Union’s Current Account data is released. In the US, the National Association of Realtors releases its Existing Home Sales for March and Month-on-Month at 15.00 BST, which should provide investors with a clearer indication of the state of the US housing market.

New Zealand dollar experiences mixed trading

The New Zealand dollar had mixed results yesterday, gaining against the ailing pound but making sharp losses against the aussie. The kiwi largely remained under pressure, with share markets slipping on poor results from Morgan Stanley. It was also weighed down by comments from New Zealand Finance Minister, Bill English, who stated that the New Zealand economy was likely in its sixth quarter of recession and the government would cut future spending in an attempt to contain widening deficits.

Australian dollar makes sharp gains against the pound

The Australian dollar made sharp gains against sterling yesterday, as the pound dived after the UK annual budget. The government forecast a massive increase in public debt and announced tax rises for high earners. The UK finance minister predicted the UK economy would contract by 3.5 percent this year while government borrowing would climb to £175 billion, or more than 12 percent of Britain’s GDP. Meanwhile, proposed tax hikes for high earners also heaped pressure on sterling, with fears this could see talent go abroad. The main worry for markets at the moment is the UK's ability to service its debt. Any hint by ratings agencies that Britain’s credit rating might be lowered will see further mass selling of sterling.