This week is beginning with currency investors on risk-averse mode following the large scale effect of last week’s poor US jobless figures; which saw the Yen being the main beneficiary. The Euro-zone has already experienced some poor data on the manufacturing industry this morning continuing speculation over the stunted recovery of the economy. The Pound is holding up well so far against the US Dollar and the Euro despite negative news on household finances and predictions of a downturn in Sterling. To take advantage of the current Sterling strength, speak with your broker today.
Pound Sterling – UK Markets
Sterling was trading at 1.5584 against the Dollar and 1.2255 against the Euro at 9.45 am this morning. The Pound has gained against the Euro since Friday and is climbing against the Dollar.
Economic reports are providing mixed views on the short and long term fate for the Pound. On the up side, last week’s strong retail figures helped to strengthen Sterling. There is speculation that the Pound may be further boosted by foreign bids for British companies with a wealth of mergers and acquisitions expected following Korea National Oil Corp’s bid for UK Dana Petroleum Plc last week.
The Pound is not expected to be supported long term however and some economists suggest a turning point may be coming soon. A survey into household finances by Markit and YouGov has highlighted the depth of domestic concern over the rising cost of living along with worries over losing jobs. Analysts are starting to predict that the currency will depreciate over the remainder of the year as budget cuts begin to curb growth. The UK’s recovery is being compared to the more successful recovery in Germany as consumer confidence has weakened and gains in house prices have been wiped out.
Whilst GDP data later this week is expected to confirm growth in the second quarter, the focus is starting to shift to the subsequent slow down so the Pound is bearing up well so far.
US Dollar – US Markets
The Dollar benefited towards the end of last week on the back of decreasing risk appetite. The Dollar Index which measures the Dollar against a basket of other currencies has hit some of its highest levels in nearly a month.
Following on from the very poor unemployment figures last week however, a report due tomorrow on home sales is expected to show a fall by 13.9 percent.
It’s a heavy week for US data releases with important data coming out every day this week from Tuesday, ending with GDP on Friday so it is likely to be a volatile week ahead.
Euro – European Markets
The economic outlook in the Euro-zone remains uncertain causing the Euro to fall to a one month low against the Dollar and a seven week low against the Pound.
French President Nicholas Sarkozy has been preparing the nation for the largest budget squeeze in two decades and the forecast for economic growth in France has been revised lower.
Furthermore, Axel Weber, council member at the European Central Bank has spoken out about his view that stimulus measures should be kept in place until the end of next year.
European PMI data this morning has revealed drops in the manufacturing sector which will add to the unease.
Other Currencies – Highlights
The Australian Dollar has weakened following the hung result of the Australian election – this is the first time a majority has not been won in seventy years. The uncertainty is likely to continue to weigh on the currency until a Government is formed.
The Yen has advanced against all of its counterparts as poor global data last week bought about a rise in demand for safe haven currencies.
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