Can The Kicked Down Pound Revive?

The Pound is starting the week on the back foot after losing nearly 2 percent to the Euro over the course of last week with Sterling heading towards a five week low against the single currency. Poor house prices hit the Pound and Trichet’s comments about an interest rate rise in Europe coming as soon as next month saw the Euro surge against Sterling and Dollar. Another UK housing report is due tomorrow which could damage the Pound further before Thursday’s UK interest rate decision.

Pound Sterling – UK Markets

Sterling has fallen against the Euro and Dollar since last week following strong US jobs data on Friday as well as the ongoing impact of a weaker than expected house price report which revealed a 0.9 percent decline. The same sector could make Sterling vulnerable again this week with the Royal Institute of Chartered Surveyors expected to report a fall in prices in a report released early tomorrow morning. Other key data on Sterling this week will be the goods trade balance report on Wednesday and manufacturing data on Thursday morning before the next Bank of England rate setting meeting at lunch time on Thursday. The benchmark rate is expected to be held at 0.5 percent but as is the case at present, it is the discussion around interest rate discussions that are causing currency movements.

US Dollar – US Markets

The Dollar fell to around a four week low against the Euro despite Friday’s jobs report which indicated a fall in unemployment to 8.9 percent and the addition of 192,000 jobs in February – much improved from January’s figure. Despite the data that ended the week, the Dollar struggled to compete with the Euro following Trichet’s hawkish comments about a potential interest rate rise in Europe. Positive data is expected from the US this week, with retail sales in particular forecast to show the most growth in four months when the figures are released on Friday.

Euro – European Markets

The Euro is sitting at around a four month high against the Dollar and a five week high against Sterling, however the currency has been rocked this morning by the news that Moody’s Investors Service are downgrading Greek Government debt from B1 to Ba1. Moody’s also assigned the rating with a negative outlook suggesting that there is a fair chance that the rating may be downgraded further. The Euro highs we are currently seeing are likely to be related with the hype over an interest rate hike next month and may become vulnerable if discussion re-focuses on the economic state of some of the weaker debt-lade nations. Despite the European Central Bank raising its growth forecast to 1.7 percent last week, sovereign debt is still lurking in the background and could begin to influence the currency depending on negotiations over debt structure between nations such as Greece, Portugal and Ireland with Central Europe.

Other Currencies – Highlights

There was no change to Mexican interest rates on Friday but central bank officials suggested that inflation is expected to rise as world commodity prices accelerate – following an actual decline in inflation in January and February. Economists are predicting that Mexico will not raise interest rates until the fourth quarter of 2011. The Pound has traced a similar path against the Peso as against the Euro and Dollar from last week, reaching one week highs on Thursday and tailing off over Friday and the weekend.