UK’s slippery slope

The Pound fell to its weakest level in more than a week against the euro as a report showed UK confidence fell in July to a three-month low, fuelling concern the economic recovery will falter. Even the weakened Dollar amidst speculation of a third round of QE did not alleviate the drop in GBP-USD currency pair this morning, losing 1.2% from overnight to 1.636 at 11:00 BST.

Pound Sterling – UK Markets

The Pound has dropped 7.5 per cent in the past 12 months against 9 major developed markets. The currency slipped as investors speculate the slowing economy would prompt the Bank of England to keep interest rates at a record low. A report from the Nationwide Building Society showed that an index of consumer confidence recorded a decline of 2 points to 49 in July, from the previous month. This has prompted fears surrounding the pace of the economic recovery. This year, UK inflation has outpaced wage growth, putting pressure on consumer spending at a time when government spending cuts are fuelling concerns at rising unemployment. The UK economy barely grew in the second quarter at 0.2% and with the problems escalating in the third quarter, it is becoming increasingly likely that we’ll see a contraction. All of this has meant Sterling has been under increasing selling pressure against the majors and further losses are likely in the build up to Friday’s data.

US Dollar – US Markets

Across the pond, the dollar weakened against the major currencies, except Sterling, early this morning amid speculation Federal Reserve Chairman Ben Bernanke will tomorrow announce further stimulus for the US economy. At last year’s Jackson Hole conference, Bernanke said the Fed would “do all that it can” to ensure a continuation of the economic recovery and that buying more debt might be warranted if growth slowed. Two months later, the Fed announced a $600 billion second round of asset purchases that ended in June. Not all analysts agree that Bernanke will signal more easing tomorrow, given some economic data suggests the U.S. economy is stabilizing. The Labour Department figures today looks likely to show a drop in US jobless by 3,000 to 405,000 over the last week.

Euro – European Markets

Despite the issues concerning European sovereign debt and a weaker than expected German IFO business index, the euro continues to find support from buyers. This is of the back of the inherit issues surround the dollar and sterling markets. Since Monday, the euro has gained 1.3% on Sterling to 1.135 and has been ranging between 1.436 and 1.447 against the dollar. Greece remains very much in the spotlight, as the ten-year Greek bond versus German bunds spread threatens to break record levels, it seems the on-going debate over collateral for the new Greek bailout is causing some panic, with the Finnish Finance Minister re-iterating his call that it would not agree to further bailout funds unless some sort of collateral is agreed.

Other Currencies – Highlights

The Swiss National Bank on Aug. 3 cut key interest rates to near zero in an attempt to curb gains in the franc, which has rallied 14 per cent against the euro in the past 12 months. The yen lost 0.3 percent against a basket of its nine most- traded peers. The declines comes after Japanese Finance Minister Yoshihiko Noda announced unveiled a $100 billion funding program yesterday intended to encourage the exchange of “yen-denominated funds to foreign currencies.”