The Italian elections continue to worry markets | Smart Daily Currency Note
GBP/EUR – 1.1532
GBP/USD – 1.5114
EUR/GBP – 0.8665
EUR/USD – 1.3082
GBP/AED – 5.5514
GBP/AUD – 1.4786
GBP/CAD – 1.5492
GBP/CHF – 1.4077
GBP/CNY – 9.47
GBP/HKD – 11.7152
GBP/HUF – 341.49
GBP/INR – 81.03
GBP/JPY – 138.50
GBP/NZD – 1.8304
GBP/RUB – 46.16
GBP/SEK – 9.7372
GBP/ZAR – 13.3356
Sterling had a mixed day yesterday – starting off on the front foot reaching highs of 1.1650 against the euro and 1.5220 against the US dollar before losing ground later in the day. Sterling struggled after one of the Monetary Policy Committee (MPC) members from the Bank of England (BoE) suggested he was open to more monetary easing and furthermore, that the prospect of negative interest rates had been raised at central bank meetings. Furthermore, realised sales data from the Confederation of British Industry (CBI) came out lower than expected. Out today we have the second estimate of the UK’s fourth quarter GDP which is expected to show a contraction of 0.3%, the same as the first estimate. Moreover, more MPC members will be speaking today, and following yesterday’s volatility, the market will pay close attention to what they have to say. Call now for the latest updates on sterling.
It has been a turbulent few days for the euro, news of the inconclusive Italian election yesterday drove the euro to a seven week low against the dollar – whilst weakening by three cents against sterling. The damage was not as widespread as first feared however, as traders became confident that the European Central Bank (ECB) would intervene to limit the fallout, and the euro strengthened in the afternoon. Today is likely to be just as volatile with two important events. Firstly, we expect an Italian 10 Year Bond auction this morning – a key way for governments to borrow money and high yields mean high borrowing costs for the Italian Government. Secondly, in the afternoon the ECB President is speaking in Germany, we traditionally see a great deal of volatility during his speeches as markets look for hints as to future monetary policy. Get in touch now for the latest news and rates.
The US dollar generally performed well yesterday, strengthening against the majority of its currency partners with Consumer Confidence figures and New Home Sales data (rising in January to the highest since 2008) both coming out much better than expected. Along with this, the Federal Reserve Chairman backed the central bank’s current stimulus program, saying that they will support the asset purchases with “little risk of inflation or asset-price bubbles” causing the dollar to strengthen further. In the testimony he stated that “We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery.” Although he also warned that the automatic federal budget cuts in line to begin 1st of March will add a “significant” burden to the economy if lawmakers are unable to avert from the reductions. Today we will see Core Durable Goods orders along with the second part of the Chairman of the Federal Bank’s “congressional testimony” on monetary policy.
Elsewhere, the Canadian dollar fell to a eight month low versus the US dollar following better than expected data out of the US and the comments from the Chairman of the Federal Bank. The commodity backed currencies struggled in general yesterday whilst the Japanese yen prospered due to risk aversion driving the markets and traders seeking safer havens for their money. The Russian rouble was one of the worst performers yesterday after GDP data released showed that the economy had contracted by 0.3%. Call in now for a market update and a live quote.
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EURO/GBP – 1.165
US$/GBP – 1.484
CHF/GBP – 1.646
CAN$/GBP – 1.518
AUS$/GBP – 1.649
Sterling gained against the US dollar throughout most of yesterday, hitting a high of $1.5054/ £1 as speculation over a deal between the Conservatives and Liberal Democrats helped calm market concerns over the political situation in the UK. Despite being up nearly 1.7% against the US dollar, the pound fell in late trading as news of Gordon Brown’s resignation opened the doors for a potential Labour-Lib Dem coalition and left the markets as concerned as they were at the start of the day. Against the euro, the pound was fairly volatile as traders digested the announcement of a 550bn package to help Greece avoid defaulting on its sovereign debt. The announcement initially caused the euro to strengthen, but the pound recovered ground later in the day as the Bank of England kept interest rates on hold and kept the emergency funding level at £200bn. Out later today we have manufacturing and industrial production data for the month. The key market moving data is the continued uncertainty over the election. Call in now for a live exchange rate.
In the Euro zone, the euro started the day well, recovering losses against the US dollar following the announcement of a new bailout deal. The bailout saw stock markets rally by several percentage points. However, in trading early this morning, the gains made by the euro have been lost again as the wave of optimism created by the 750bn injection has given way to concerns that the support will not avert a slowdown in the region as seen in Japan in the 90’s and in the USA in 2008-09. At this stage, the bailout has eased some of the concern of the last few weeks, but the Euro zone now has a tough few years ahead of it. Out today we have had German inflation data which has shown an unexpected rise. This has had little effect on the euro though. Get in touch now to ensure you plan your next payment efficiently.
In the USA, Deutsche Bank – the world’s biggest currency trader – said that the US dollar is likely to extend its 12% gain against the euro as Europe needs more than just emergency funding to help strengthen the single currency. Looking at purchasing power parity (the equivalent cost of two identical goods in two different currencies), the bank’s ‘fair value’ exchange rate prediction for the /$ is between the 1.15 – 1.20/ $1 marks. Following yesterday’s bailout the US stock markets surged by nearly 4%. Out today, we have some minor economic data which is unlikely to have any effect. Get in touch now for a price.
Elsewhere, Chinese inflation jumped 2.8% since last April and with inflationary measures building, the country’s economy is at risk of overheating. This builds the case for stronger interest rates in the country and a revaluation of the currency to allow it to strengthen. The Chinese yuan is ‘pegged’ (i.e. fixed) against the US dollar. Any revaluation of this could impact UK importers as prices of goods in the country will rise. Additionally, yesterday saw the Polish zloty’s biggest daily gain ever – gaining over 2% against the pound as the currency benefited from the European bailout. However, the currency has reversed some of these gains this morning. Get in touch now to ensure you don’t miss out.
Exchange rates change every second – call Smart Currency Exchange for a live up-to-the-minute quote on our Freephone number: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or fill out our online quote form at: SmartCurrencyExchange.com/quote.aspx