Exchange rates are volatile following the UK Bank of England minutes and budget yesterday coupled with dire retail sales figures from the UK this morning. In Europe, the resignation of the Portuguese Prime Minister following the failure of the passing of the austerity measures has damaged the Euro. The result is that the Sterling has lost out to the both the Dollar and the Euro – but being injured itself, the Euro is also losing ground to other currencies such as the Dollar. Whether the Euro can recover may depend on how strung out events in Portugal are and whether the problems of other Euro zone nations similarly resurface.
Pound Sterling – UK Markets
The Pound has lost out to the Dollar so far today with a poor set of retail figures adding to the damage done to Sterling yesterday by the Bank of England minutes. This morning's retail figures showed a fall by 0.8 percent in the month of February. There had previosuly been some growth overnight against the Euro but this can be attributed to problems in Europe with Sterling dropping again today.
The figure is so bad that is has reversed half of January’s rebound in retail figures and the ratings agency Moody’s have suggested that further risks to growth could endanger the triple A credit rating for the nation. The figure worryingly suggests that the VAT rise may be having more impact than first thought – but also that the drop can not be wholly attributed to VAT so indicated deeper problems with retail spending.
US Dollar – US Markets
The US Dollar has gained against the Euro and Pound with the failure of Portugal’s austerity budget to pass through Parliament, causing investors to turn away from the Euro and towards the Dollar instead.
This has occurred despite disappointing new home sales figures from the US yesterday afternoon. A small improvement in the amount of initial jobless claims is expected this afternoon.
Euro – European Markets
The Euro has tumbled against the Dollar after Portugal’s Parliament failed to pass the austerity measures required to ensure continuing help from Europe and the ability to repay funds. The Portuguese Prime Minister has resigned highlighting the uncertainty that the issue raises for the position that cash strapped nations are finding themselves in.
Moody’s Investors Service have also downgraded thirty Spanish banks which has not helped the Euro. The next meeting of the European Central Bank is on the 7th April with several policy members still dropping hints that an interest rise is due. Should this fail to materialise, the Euro could begin to start looking very vulnerable.
Other Currencies – Highlights
The New Zealand Dollar has strengthened as GDP figures revealed expansion in the fourth quarter of 2010. The currency climbed against all of its most traded other currencies.
GDP expanded by 0.3 percent in the fourth quarter avoiding a second straight quarter of contraction.
Markets Turn Choppy Ahead of Key Data
British Pound Extends Slide as Cross-Party Talks Collapse