Midday rates update

Please click on graph to enlarge

Pound/euro volitile ahead of G20

Despite worse than expected revised GDP data from the UK on Friday, the pound strengthened against the euro amid rising expectations that the European Central Bank will move towards quantitative easing. A sharp slump in January industrial orders in the eurozone on Friday also prompted a flight from the euro, and this was exacerbated by comments from German Finance Minister Peer Steinbrueck about the stability of the euro if 'fiscal responsibility is not taken more seriously in Europe.'

The pound has lost some of its gains to the euro this morning following the release of Hometrack's housing survey for March, which showed that the average price for a home in England and Wales plummeted by a record 10.3 percent on the year in March.

Money Supply, Consumer Credit and Mortgage Approvals data will be released in the UK this morning, while Consumer, Industrial and Economic Confidence figures are due from the eurozone today, in addition to a speech by ECB President Jean-Claude Trichet.

Dollar strengthenes on risk aversion

The US dollar strengthened over the pound by 1.31 cents on Friday as falling US stocks saw the dollar’s safe haven demand increase. At the same time it was announced that the UK’s gross domestic product, the size of the economy, shrank by 1.6% in Q4 2008 and by 2% in the year. This was the largest quarterly contraction since 1980 and saw the pound sold off as fears resurfaced about the health of the British economy. Comments from senior Russian central bank staff and the managing director of the IMF supported the view that the dollar would remain the world’s reserve currency for some time and this gave the greenback a boost.

Over the weekend the pound fell a further 0.89 cents against the dollar to open at the 1.4231 level, and the greenback has continued its march during today’s trading. Investors have become risk averse ahead of this week’s G20 meeting in London and news that the US government task force has rejected the turnaround plans of General Motors and Chrysler. Later today M4 money supply, mortgage approvals and net lending to individuals data will be released in the UK, while there are no major economic announcements due in the US.

Euro undermined against dollar as ECB rate cut looks likely

The dollar strengthened against the euro on Friday on the view that the ECB will cut interest rates and announce quantitative easing measures at their next meeting on 2 April. The euro also weakened on the back of comments by German finance minister Peer Steinbrueck about the strength of the euro if 'fiscal responsibility is not taken more seriously in Europe.'

A fall in eurozone industrial orders in January and a weak performance on Wall Street on Friday also resulted in investors flocking to the safe haven of the dollar. US GDP data was not as dire as anticipated - it fell by an annual rate of 6.3% in the final quarter of last year, but this was still better than consensus forecasts from economists of a 6.6% fall.

This morning the dollar continued to strengthen against the euro. There are several announcements taking place in the eurozone today including Consumer Confidence, Economic Confidence and Industrial Confidence due to be released at 09.00 GMT. Additionally the ECB’s Trichet will be making a speech at 14.30 GMT. There are no significant announcements taking place in the US today.

Aussie dollar comes off highs

The Australian dollar remained just off recent highs as stocks ended on a downward note late on Friday. After a recent strong run on equity markets investors remain cautious over any potential further gains. Much of this week’s direction is likely to be driven by the upcoming G20 meeting on Thursday. Both the Australian and British leaders are calling for a more coordinated approach to stimulating the world economy. However, it remains to be seen whether all the participating countries can agree on a workable consensus.

Kiwi dollar holds ground

The New Zealand dollar remained firmer over the weekend, as it was backed by better than expected GDP data on Friday. The figures showed a 0.9 percent contraction in the fourth quarter, but markets reacted positively as this beat forecasts of more than a 1 percent drop.

Midday rates update

Please click on table to enlarge

Pound falls against Aussie dollar

The Australian dollar strengthened further against sterling yesterday, after figures revealed UK retail sales in February fell 1.9 percent. This was almost five times greater than what was forecast and only added to the economic gloom. With rising unemployment, falling house prices and continuing tight credit conditions it seems unlikely that the retail sector will improve over the short to medium term. Rumours have also now surfaced of a possible rift between the government and the BoE. Mervyn King, the BoE Governor, commented this week that there was little room for extra economic stimulus going forward. Prime Minister Gordon Brown, however, seems to be championing the cause of a coordinated economic stimulus going into the next G20 meeting.

Pound falls lower against euro

The pound was sluggish against the single currency yesterday as softer than expected retail sales figures for February worried investors. The inclement weather and poor economic conditions kept consumers away from the high street, with the monthly fall of 1.9% taking the annual growth rate to 0.4% - the weakest since 1995. Sterling was also under pressure following Wednesday’s failed gilt auction, the first failed auction since 2002, although yesterday did bring some relief to the market as a sale of £1.1bn of index-linked gilts due 2022 was 2.72 times covered.

Barclays bank are also expected to receive some brighter news today as they have passed an FSA stress test, the same one that resulted in Lloyds Banking Group participating in the governments asset protection scheme. The news will boost Barclays as it strives to keep out of the hands of the government.

The eurozone releases their industrial new orders data this morning, whilst within the UK GDP figures for the fourth quarter of 2008 are revealed.

Poor retail sales sees cable push lower

Worse than expected retail sales data saw the pound weaken by 1.02 cents against the US dollar yesterday, closing the session at the 1.4451 level. Early gains were pared after it was shown that UK retail sales fell 1.9% in February and 0.4% in the year to February. This news out-weighed any gains that were to be made from the news that the rate at which total business investment was falling in the UK had eased, falling only 1.5% in Q4 2008. Improved risk appetite during the US session failed to buoy the pound when investors drew confidence from rallying stocks and commodities. In the US, gross domestic product figures confirmed that the American economy contracted by 6.3% in 2008 whilst jobless claims data showed that there were 624,000 new claimants on top of the 5,560,000 people who continue to receive support.

In today’s trading the pound has continued to slide ahead of the significant announcement of gross domestic product figures in the UK at 09.30 GMT. Also announced in the UK today are Nationwide house prices and current account data. In the US there is a barrage of major economic announcements this afternoon, which includes core personal consumption expenditure, personal income and personal spending figures, as well as the release of the Reuters/Michigan Consumer Sentiment Index.