Sterling Weakens Again
Pound Sterling - UK Markets
Sterling has declined sharply against the US Dollar this morning, to below 1.47 as markets await the PMI for the service sector. The Pound is also down against its major currency partners, pressured by a barrage of data this week and is currently in the vicinity of 1.16 versus the Euro.
Following weak manufacturing data on Monday, PMI for the construction sector came in weaker than expected yesterday at 31.8. The service sector PMI is due today and negative figures could result in further Sterling volatility. The UK service sector accounts for 50% of GDP. The Queen's speech today is set to make legally binding the convention that governs responsible bank lending criteria. Having bailed out the banking sector with £500 billion last month, the government has been unimpressed by banks raising fees and restricting credit for small businesses. There have been calls for a closer relationship between Bank of England base rates and lending rates for small businesses. This morning Lloyds, HBOS and RBS have each pledged to help narrow the gap. LIBOR rates continue to decline following the 2% reduction in the base rate in the last 2 months. Consumer confidence survey figures in the UK this morning show a drop in confidence due to economic downturn.
US Dollar - US Markets
The Dollar has recovered this morning after losing ground yesterday as markets digested news of the NBER report. Risk aversion is still dominant internationally, favouring the US Dollar and Yen.
The Washington Post Consumer confidence survey yesterday delivered record lows and global recovery prospects have been revised to the second half of 2009. By this time government interventions should have trickled through to consumers and economists are predicting we could see an upturn in growth. At present crude remains in the region of $47 a barrel. Mortgage application figures and employment change are due from the US today with the official unemployment rate released on Friday.
Euro - European Markets
The Euro declined sharply against the US Dollar this morning and made gains on Sterling as investors anticipate UK service sector data out this morning.
The EU PMI declined to 42.5 after 45.8 in October. This is the sixth consecutive month of decline and like the UK, is a record reading adding weight to the case for an ECB interest rate cut tomorrow. A drop of at least half a percentage point from the 3.25% base rate is expected. Markets will be interested in EMU retail sales figures due this morning.