The pound made gains in early trading after a reported rise in UK consumer confidence but then slipped after a weaker-than-expected reading of the UK services sector. Meanwhile the dollar fell against the euro in early trading and the Australian central bank caught the market unawares with yesterday’s decision to keep interest rates steady.
Pound Sterling – UK Markets
Sterling was bolstered early on as The Nationwide Building Society's overall consumer confidence index went up to 73, nearly twice as much as a year ago. The fact that it showed an increase in confidence regarding the economy, employment and household income over the next six months clearly shows that Nationwide only surveys 1,000 of the country’s most eternally optimistic.
However, the PMI index fell at 0930, pulling the pound acutely down to USD1.6019 from around USD1.6052 prior to the announcement and 1.1421 against the EUR, a drop of 60 points. This serves to highlight the continued fragility of the economy and concerns over Britain's fiscal woes and uncertainty ahead of a general election continue to hang over the currency.
The main event this week will be the BoE’s policy announcement tomorrow and expectations that the central bank will halt its Quantitative Easing programme has supported sterling. It will be interesting to hear what the Bank has to say as it may not necessarily be what the market expects.
US Dollar – US Markets
After its recent gains the dollar gave a little back to other majors including the euro as worries eased over the situation in Greece. Trading ranges have been tight as investors remained hesitant prior to the release of the US Non-Farm Payrolls report due Friday.
At 0949 GMT, the dollar traded against the pound at 0.623. Later today, traders will be eyeing the release of the ADP Non-Farm Employment Change along with the ISM Non-Manufacturing PMI.
In the past the ADP report has shown a correlation with the aforementioned Non-Farm Payrolls Report due on Friday, which could cause some significant movements in the market.
Overall, the US economy continues to remain robust compared to its fellow majors. Ongoing significant comparative growth may mean a long-term position of strength.
Euro – European Markets
The European Commission on Greece's plan to reduce the government budget deficit meets today, which could spell some relief for the euro, which traded against the dollar at EUR/USD 1.397 at the time of writing.
Looking ahead, a week packed with news promises to create volatility for the major pairs of the euro and the support that the single currency experienced today may not continue throughout the week.
On Thursday the European Central Bank will publish its minimum bid rate along with the accompanying announcement explaining the central bank's position on the European economy.
Meanwhile, the downturns in the Spanish and Irish service sectors continue. Ireland was the weakest performer overall, with its rate of decline accelerating sharply to the quickest since last July. The contraction in Spain was the least marked during the current 25-month period of decline. France (which recorded the strongest growth), Germany and Italy all reported increased levels of business activity in the first month of 2010.
Other Currencies – Highlights
The forex market was caught off guard yesterday after the Australian central bank made an unexpected decision to keep interest rates steady.
Economists forecast that Australian interest rate would rise 0.25 basis points to 4.00%. Instead rates will remain for the time being at 3.75%. The decision has boosted the Aussie against the greenback as the pair climbed to a high of 0.8881 in early trading.
Sterling Rises on Hopes of EU Softening Tone on Backstop