For the third day in a row Sterling has spent the morning edging up against the US Dollar and Euro following the morning’s data releases. The lesson of the past two days has been that the gains will not necessarily continue throughout the day but the Pound has responded so far this morning to better than expected retail sales, an improvement in public sector net borrowing and a reported growth in UK goods.
Pound Sterling – UK Markets
The Pound is particularly strengthening against the US Dollar so far today. This morning’s public sector net borrowing figures will have been under particular scrutiny with Ireland sending debt issues to the top of the agenda. The UK has reduced its net borrowing which fell from £14.437 billion to £9.770 billion in October.
This morning’s figures which follow yesterday’s improvement in unemployment provided an overall positive view on the economy. Although mortgage approvals registered a drop, retail sales grew in October from -0.5 percent to +0.5 percent beating expectations.
The Pound closed at €1.1779 yesterday, gaining 0.4% against the single currency. However, it again closed down against the Dollar at $1.58796.
The Chancellor of the Exchequer, George Osborne, has stated the UK’s willingness to assist Ireland to achieve economic stability, if asked. He pointed out that it is in Britain’s interests to ensure that her neighbour, the only EU member with whom Britain shares a land border, has a successful economy. This could see the Eurozone issues begin to have a knock on effect on Sterling.
US Dollar – US Markets
The Dollar has continued to strengthen against the Euro as worries about Irish debt persist. It closed at $1.3481 yesterday, gaining 1% over the course of the day. US core inflation has fallen to 0.6%, the lowest year-on-year increase on record. The broader consumer price index (which includes volatile price items such as food and fuel) rose by 0.2% in October, resulting in a year-on-year rise of 1.2%.
Much of this increase was attributed to a 4.6% rise in petrol prices in September. US government bonds rallied on the back of the news in anticipation of fresh purchases as the Federal Reserve moves ahead with quantitative easing.
This afternoon sees data on jobless claims and manufacturing.
Euro – European Markets
The Irish financial situation continues to dominate markets in Europe. The Euro is coming under pressure against all the other major currencies as uncertainty continues.
This morning has also revealed the EU current account deficit widened from -6.9 billion Euros in August to -13.1 billion Euros in September which will not help the single currency.
Representatives from the EU, ECB and IMF are due in Dublin for further discussions on the Irish debt crisis with the government. Following the Greek crisis in the spring, mechanisms have been put in place to help Eurozone members faced with excessive borrowing costs from raising money on the bond market.
The European Central Bank President Jean Claude Trichet is giving a press conference regarding the European economy at 13.30 today.
Other Currencies – Highlights
Governor Nils Bernstein has announced that Denmark’s central bank needs more foreign currency reserves to defend the Krone’ s peg to the Euro. It is also expected that further interest rate rises may be needed in December.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results