Good afternoon, these are today’s highlights (or rather lowlights for the UK) in the currency markets from TorFX, Currencies Direct and Moneycorp. There is a sense of foreboding on the market today after both the Euro and Sterling took a sharp dip against the dollar, this is as a result of the IMF’s stance on the UK coalition’s austerity measures and how this may affect growth and investors are becoming sceptical.
TorFX
Following on from last week, the Pound declined to the lowest level in two weeks against the Euro, falling under the pivotal 1.20 level to a low of 1.1887 over the weekend, while the UK currency also suffered losses against all but one of the 16 most actively traded currencies. Signs that the economic recovery is losing momentum is weighing heavily on the Pound.
The Pound also declined heavily against the U.S Dollar last week, dropping back under $1.50, despite the overall improvement in global risk appetite, which has diminished support for lower-yielding currencies. There has been a wave of optimism engulfing the UK that the Coalition government would reduce the budget deficit while sustaining economic growth but there are signs that investors are becoming sceptical.
The Pound has declined against the lower-yielding currencies, including the U.S Dollar, despite UK stocks rising for a fourth straight day on Friday, as the IMF increased global growth forecasts. Lloyds Banking Group Plc was up 4.3%, as the benchmark FTSE 100 Index rose 1.8% on the day, the biggest three day gain since April.
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Currencies Direct
Sterling and Euro rallies run out of Steam
This week sees US firms reporting their quarter two numbers, the usual window dressing and massaging of numbers will likely induce a fair amount of volatility in the stock and currency markets but the market believes an overall positive theme should emerge and this is producing the current Dollar strength.
Sterling fell below the key 1.50 level over the weekend as fears over the UK economic recovery remerged. The IMF’s warning that spending cuts and tax increases announced by the coalition Government will reduce future growth levels has pushed the pound lower against the Dollar and Euro, but the key driver of the Sterling sell off seems to be technical.
The Yen came under the spotlight with the dismal showing from the ruling party in Japan at yesterday's elections. The results showing that the Democratic Party took only 44 seats in the Upper House, down from 54, and lost control of the House have left the recently appointed PM, Kan's position seemingly untenable and puts into doubt the whole package of reform designed to pull Japan's struggling economy round.
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MoneyCorp
Loonie leaps on labour figures
One might have expected the euro to feel some benefit from a world cup victory by one of its member states. The Spanish economy will almost certainly get a short-term boost from increased spending on food and alcohol as well as on the commemorative shirts and replica trophies that people buy in moments of euphoria before stacking it with all the other useless tat in the spare bedroom. But for the euro zone and its currency this is not just a zero-sum game; it is arguably a net loss. Not only will morose Dutch people shun the souvenirs stockpiled by optimistic merchants, the French, the Italians, the Greeks, the Slovenians, the Germans, the Slovakians and the Portuguese had already gone home empty-handed to depress their nations. For the euro zone as a whole it looks less like a Spanish victory, more a 1-8 defeat.
Other than German consumer price inflation and French and Italian industrial production there were no Euroland economic data to set any different pre-match tone for the euro on Friday.
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