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.

Fading optimism strengthens US dollar

The US dollar strengthened over the pound by 0.76 cents yesterday to close the day at the 1.4768 level, as fading optimism about the recovery of the global economy saw stocks fall across the world. Falling equities promoted risk aversion and saw investors buy the greenback as a safe haven. The pound is particularly sensitive to equity market moves and had strengthened to 1.4958 earlier in the session.

In today’s trading the dollar has continued to strengthen over the pound, although some of its gains have been pared after reaching as low as 1.4641. Later today industrial production and manufacturing production data is released in the UK as well as Nationwide consumer confidence figures and the NIESR GBP Estimate. In the US, data from the ABC/Washington Post Consumer Confidence index is released.

US dollar strengthens as equity markets slip

The dollar strengthened against most major currencies yesterday as European and US markets retreated ahead of the first-quarter reporting season, with the Dow Jones falling 155 points. Other significant news included the announcement that IBM Corp had decided not to go ahead with the planned takeover of Sun Microsystems Inc.

Data out in the eurozone which showed that retail sales had fallen also contributed to the weakening of the euro. The data showed that sales had fallen 4% from the year before, much more than analysts had predicted. Last week the ECB cut interest rates by 0.25%, less than the anticipated 0.5% and the G20 meeting concluded with the announcement that there will be $1 trillion provided in aid to revive the global economy. This resulted in an increase in investors’ risk appetite, thus diminishing the appeal of the dollar. However, the boost in the euro against the dollar seems to have been short-lived.

Gross Domestic Product figures are due from the eurozone today, while Consumer Credit and Consumer Confidence figures will be released in the US this afternoon.

Quiet day for sterling / euro

Yesterday proved to be a quiet day for GBP / EUR trading as the Institute of Fiscal Studies warned that Chancellor Alistair Darling will have to double his fiscal tightening efforts in a bid to bring public borrowing under control. The Institute warned that an extra £39bn a year would be needed to bring recent expenditures under control, with the Budget due in just over two weeks on 22nd April. It was also revealed that new car sales were 30.5% lower last month than a year ago, as the gloom deepened further within the car industry. Any optimism lingering from the G20 meeting last week soon evaporated and the FTSE 100 ended the day 1% lower as investors became risk averse, with sterling coming under selling pressure.

The Bank of England’s interest rate decision looms on Thursday, with the Caxton FX analysts anticipating that rates will be kept on hold following a swathe of cuts in the past 6 months. The policymakers are also expected to see how the recently implemented quantitative easing programme is affecting the markets.

Today, investors will take note of industrial and manufacturing details released in the UK, with final fourth quarter GDP figures released within the eurozone this morning.

New Zealand dollar's recovery halted

The New Zealand dollar’s recent recovery halted overnight as global equity markets fell, causing growing investor risk appetite to stall. In the last week the G20’s attempt to revive the global economy had caused an upturn in equity markets, helping demand for riskier assets and high yielding currencies. Most analysts believe it is still too early to tell whether this is the start of a recovery for the kiwi. In the meantime direction will still mainly come from broader market themes.

Reserve Bank of Australia cuts rates

The Australian dollar remained within recent ranges against sterling yesterday, in a choppy day of trading which saw global equity prices fall. Little domestic data was released from either country yesterday, providing no further impetus. However, overnight the Reserve Bank of Australia cut domestic interest rates by 0.25%, and the aussie dollar strengthened following the announcement, as the central bank indicated that any further rate cuts were likely to be modest.