The pound came under selling pressure yesterday as equity markets tumbled and investors began to brace themselves for the budget due in the UK on Wednesday. Despite the employers’ group, the CBI, coming out and forecasting that there will be economic growth in spring next year, markets were concerned about what may prove to be one of the grimmest budgets in decades. Sterling’s problems were also compounded by the announcement from Bank of America that it had seen a large increase in troubled loans, with the bank setting aside more funds for potential credit losses. Such news is negative for sterling due to the UK’s heavy dependence on the banking sector to drive the economy.
The Consumer and Retail Price indices are released in the UK this morning, giving an indication of inflation at present. Inflation has been cooling of late as commodity prices have fallen in the past year and the economy has been slowing. ZEW also release their economic sentiment survey within Germany this morning. Overnight we have seen Asian equities come under more selling pressure in a possible sign of things to come in Europe and North American trading. A slight boost to the FTSE today may come from Tesco, as they have reported pre-tax profits of £3.13bn, ahead of expectations, and an improvement of 10% on last year.
Tuesday, 21 April 2009
Pound weakens against the US dollar ahead of budget
The pound fell 2.45 cents against the US dollar in Monday’s trading to close at the 1.4537 level as investors remained cautious ahead of the UK’s budget tomorrow. Alistair Darling is expected to announce one of the poorest economic outlooks for decades when he outlines his budget for 2009-2010, and he is also expected to try and explain why the UK will need to increase borrowing to unprecedented levels. The Treasury looks set to reveal that it anticipates a 3.0-3.5% slowdown in the UK economy, a stark increase from November’s prediction of 0.75-1.25%, and that borrowing will hit around £180 billion, up from a projected £118 billion in November. The Confederation of British Industry (CBI) announced yesterday that it believes that the recession will ease off in the second quarter of this year and Rightmove reported that the rate at which UK house prices are falling had eased off. However, these announcements did little to pare sterling’s losses against a broadly stronger dollar.
In today’s trading the pound has managed to hold its ground somewhat against the US dollar, having come off an earlier low of 1.4471. Today sees the announcement of Consumer Price Index and Retail Price Index data in the UK and the ABC/Washington Post Consumer Confidence survey in the US.
In today’s trading the pound has managed to hold its ground somewhat against the US dollar, having come off an earlier low of 1.4471. Today sees the announcement of Consumer Price Index and Retail Price Index data in the UK and the ABC/Washington Post Consumer Confidence survey in the US.
Euro pressured by concerns about the banking sector
The euro rose by 0.1 percent overnight to $1.2932, a slight recovery after hitting a one-month low yesterday. Yesterday’s weakness came on the back of investors’ concerns over the global recession and renewed fears about the banking sector. Investors are also awaiting the ECB’s interest rate decision, where the central bank is expected to cut interest rates by 25 basis points and possibly announce non-conventional measures such as quantitative easing to tackle the recession, which other countries such as the UK and US have already undertaken. ECB President Jean-Claude Trichet indicated on Sunday during a trip to Tokyo that the bank's next move could likely be an interest rate cut of 25 basis points at its next meeting on May 7, but he failed to refer to any non-conventional measures, which resulted in increased investor concern about the euro.
US equities fell yesterday after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles. The bank reported an increase in profit, but the fact that it reported a large increase in bad loans resulted in further concerns about the sector as a whole and prospects for an economic recovery. US data was also grim, with the Conference Board announcing that the recession is likely to continue throughout the summer.
In the UK, Alistair Darling will be announcing his budget report on Wednesday. This is likely to have an effect on most major currencies, because if the news is seen as bearish investors are likely to abandon riskier currencies and flock to the safe haven of the dollar, weakening the euro against the dollar.
In Germany, the ZEW Economic Sentiment Survey will be released at 10.00 BST this morning, whilst the ABC/Washington Post Consumer Confidence survey will be announced in the US at 22.00 BST.
US equities fell yesterday after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles. The bank reported an increase in profit, but the fact that it reported a large increase in bad loans resulted in further concerns about the sector as a whole and prospects for an economic recovery. US data was also grim, with the Conference Board announcing that the recession is likely to continue throughout the summer.
In the UK, Alistair Darling will be announcing his budget report on Wednesday. This is likely to have an effect on most major currencies, because if the news is seen as bearish investors are likely to abandon riskier currencies and flock to the safe haven of the dollar, weakening the euro against the dollar.
In Germany, the ZEW Economic Sentiment Survey will be released at 10.00 BST this morning, whilst the ABC/Washington Post Consumer Confidence survey will be announced in the US at 22.00 BST.
New Zealand dollar hit by risk aversion
The New Zealand dollar was buffeted yesterday by falls in equity markets and decreased demand for riskier assets and high yielding currencies. Domestic data over the last week still paints a gloomy picture for the local economy, and investors are still pricing in a 50 basis point rate cut when the Reserve Bank of New Zealand meets next week. Local data remains sparse this week, so the kiwi will continue to be largely guided by broader market movements.
Australian dollar undermined by falling equities
The Australian dollar retraced recent gains against the pound yesterday, after falls in global equities dented investor risk appetite and demand for high yielding currencies. The share market falls were largely driven by the banking sector, with fears the situation may get worse before it gets better. This has effectively doused growing optimism that the global economy was bottoming out of its steep decline. Investors will focus on a raft of UK data in the next few days, starting with inflation figures today. But the central focus this week will be the UK government’s annual budget tomorrow. The government is already running a massive deficit so any plans to further loosen fiscal policy may be poorly received by markets.
Monday, 20 April 2009
Quiet day for sterling/euro despite rally on equity markets
It proved to be a quiet day of trading for GBP/EUR on Friday, despite equity markets in Europe enjoying a rally after Citigroup and General Electric both reported smaller losses than expected in the first quarter. Investors were averse to taking on too much risk ahead of the weekend, in addition to the fact that the pound had enjoyed a significant rally in a truncated week. Sterling gained over a cent against the euro in the week, driven by improved risk appetite in markets on the back of major US banks releasing first quarterly results ahead of forecast. The single currency was also put under selling pressure during the week as comments first by Axel Weber and then by Jean-Claude Trichet suggested that interest rates are set to fall in the eurozone next month with the potential for quantitative easing as well.
There are no major economic releases due in the eurozone or the UK today, so expect GBP/EUR to continue taking its direction from equity markets.
There are no major economic releases due in the eurozone or the UK today, so expect GBP/EUR to continue taking its direction from equity markets.
Pound weakens against the US dollar despite stronger equities
The pound lost ground to the US dollar on Friday despite stronger equity markets, falling from a 3-month high against the greenback after UK Trade and Investment Minister Mervyn Davies said he was not worried about a further slide in the pound, and suggested a weak currency could help the British economy pull out of recession. The dollar was also helped by a weaker euro on Friday.
The pound has continued to lose ground to the dollar this morning, falling to a 1-week low as market players await the British budget due on Wednesday. The budget may be bad news for sterling, as it is expected to include borrowing projections of £170bn, while Chancellor Alistair Darling is expected to reveal that the economy will contract by as much as 3.5 % this year compared with his prediction of a 0.75 to 1.25% contraction in the pre-budget report last November.
There are no economic releases due from Britain today, while the only release from the States will be US Leading Indicators figures at 15.00 BST.
The pound has continued to lose ground to the dollar this morning, falling to a 1-week low as market players await the British budget due on Wednesday. The budget may be bad news for sterling, as it is expected to include borrowing projections of £170bn, while Chancellor Alistair Darling is expected to reveal that the economy will contract by as much as 3.5 % this year compared with his prediction of a 0.75 to 1.25% contraction in the pre-budget report last November.
There are no economic releases due from Britain today, while the only release from the States will be US Leading Indicators figures at 15.00 BST.
Euro falls to 5-week low against the US dollar
The euro fell against the US dollar on Friday, and has continued falling this morning to reach its lowest point since mid-March, in anticipation of another interest rate cut from the European Central Bank on May 7. The ECB is expected to cut interest rates by a quarter point as well as possibly announcing quantitative easing measures in order to combat the recession.
Comments from ECB President Jean-Claude Trichet reported in the Japanese media over the weekend helped push the euro below $1.3000 for the first time in five weeks. There was a lack of clarity regarding Trichet’s comments during a speech in Tokyo, with concerns about the central bank’s future policies weighing on the euro. Trichet indicated that there will be a 25 basis point cut announced at the next meeting but failed to clarify if and what unconventional measures may be used. He also stated that a zero interest rate would not be suitable for the eurozone.
There are no significant announcements taking place in the US or the eurozone today, to the euro/dollar pairing will be directed by broader market movements.
Comments from ECB President Jean-Claude Trichet reported in the Japanese media over the weekend helped push the euro below $1.3000 for the first time in five weeks. There was a lack of clarity regarding Trichet’s comments during a speech in Tokyo, with concerns about the central bank’s future policies weighing on the euro. Trichet indicated that there will be a 25 basis point cut announced at the next meeting but failed to clarify if and what unconventional measures may be used. He also stated that a zero interest rate would not be suitable for the eurozone.
There are no significant announcements taking place in the US or the eurozone today, to the euro/dollar pairing will be directed by broader market movements.
New Zealand dollar makes gains against the pound
The New Zealand dollar gained against sterling over the weekend after risk appetite returned to the market. Optimism in local and regional stocks extended from last week’s rally, bolstering investors’ appetite for higher yielding assets. With little domestic data due this week, the kiwi is likely to take its direction from equity markets as further corporate earnings are released.
Australian dollar strengthens over the weekend
The Australian dollar strengthened against sterling during the weekend session after global equity markets improved. Market participants will await the UK budget due this Wednesday, where it is widely expected to downgrade its economic outlook for the year whilst increasing government borrowing. The pound also suffered after UK Trade and Investment Minister Mervyn Davies told Reuters he was not worried about a further slide in the currency, while adding a weak currency would help the British economy out of a recession.
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