Pound slumps overnight
Pound Sterling - UK Markets
The Pound has declined sharply overnight, lower against all its major currency partners as the effect of the Bank of England's report, rising unemployment and increased risk aversion take their toll on Sterling. This morning the Sterling-Euro exchange rate is at 1.10 while the Sterling-Dollar is 1.42. The Pound is also down over 1.8% against the Yen.
Bank of England Governor Mervyn King revealed yesterday he expects the UK economy to contract up to 4% in the first quarter of 2009 and unemployment statistics show the number of jobless at almost 2 million. In his speech King hinted at further unconventional attempts at monetary easing and money supply at a time when growth prospects remain “unusually uncertain”. This uncertainty is dampening investor confidence, particularly at a time when quantitative easing is still on the table as a tactic for consideration. This option is viewed by economists as fraught with risks and would likely have a severely negative impact on Sterling exchange rates. The issue of corporate bonuses is gaining traction in Parliament after RBS claimed it is still to pay up to £1 billion worth of bonuses despite making 2,300 job cuts yesterday. Current predictions are for economic recovery to begin by the fourth quarter of 2009 and carry on into 2010 by when recent monetary easing policy should begin to impact on markets. There is no significant data out in the UK this week.
US Dollar - US Markets
The Dollar has strengthened across the board this morning, benefitting from its reserve status as global equities still remain in negative mode. The Dollar is up over 1% on the Australian, Kiwi and Pound and has gained 0.4% on the Euro.
US market focus remains on the passing of the Federal Reserve package and in the absence of decisive policy action US equities have been lacklustre. Congress is currently moving towards passing a $789 billion rescue package, smaller than the original versions as ‘nips and tucks' have been made to ensure a political compromise. Economists are predicting the US economy to contract 2% this year and despite Obama's attempts to create 3.5 million jobs, unemployment is expected to top 8% in 2010. US retail sales figures, a key driver of the US economy, are out today.
Euro - European Markets
The Euro has had mixed results overnight, declining against the US Dollar but gaining on the Pound. The Euro-Sterling exchange rate has climbed to 0.90 while the Euro-Dollar has sunk to 1.28. The Euro is also up on the Aussie and Kiwi Dollars, yet is down against the Canadian Dollar and Yen as investors favour traditional safe havens.
The EUR-USD exchange rate is broaching a weekly low at 1.28 and the Euro is coming under selling pressure while market doubts remain about the effectiveness of the US stimulus package. The ECB monthly report for February cited the extraordinary exchange rate volatility in recent months as uncertainty surrounding the length and depth of global recession has prevented traders from taking up long term positions. European equities remain negative and the Swedish Central Bank cut interest rates yesterday to 1%. EMU industrial production figures are due this morning and GDP for Germany and the EMU are out tomorrow.
Other Currencies - Highlights
Mixed news from Australia this morning as figures show the economy has added 1,200 new jobs, yet the unemployment rate has risen to 4.8%. Business confidence is also at the worst level since 1992. This would suggest the Australian economy is still in the early stages of the downturn and the Australian Government has claimed the economy will contract without the aid of a fiscal stimulus package. The AUD42 billion plan proposed by the Government has been defeated in the Senate in a tied vote. This will force PM Kevin Rudd back to the drawing board and the Aussie and Kiwi Dollars are likely to remain dominated by market focus on risk aversion with US retail sales to be released later in the day.