Pound continues decline against majors as UK business confidence falls
• Pound continues decline against majors as UK business confidence falls• Dollar’s rally cools after US data release but still holds gains on majors• Aussie dollar approaches record high, Kiwi halts drop on trade data• Euro shrugs off political worries in Germany & Portugal to focus on po¬tential ECB interest rate rise next month
Yesterday’s trading session saw the greenback continue its march over the majors but towards the end of the UK trading day we did see the dollar cool off after US income data was released. An eight week high was posted over the UK currency as cable fell to $1.5936 in the wake of falling confidence in the pound. Against the euro there was a gain of around a cent as EUR/USD pushed down to $1.4026 and against the yen, the buck continued its rally as we closed in on the Y82.00 handle. US Personal Income increased 0.3% in February, slightly below the consensus, 0.4% and below the 1.0% increase posted in January. Personal spending in¬creased 0.7% in February, from the revised 0.3% increment posted in January, and above the 0.6% rise fore¬cast by the market. Data 15.00: CB Consumer Confidence 64.9 from 70.4.
Sterling is still under huge pressure against the majors after hitting a 5 month low against the euro last night, but managing to pick itself off the floor against the dollar after bouncing back through the $1.60 handle in afternoon trade. The pounds depreciation came after a report showed business confidence in the UK slid to the weakest level in two years, bolstering the case for maintaining interest rates at a record low. It seems the inter¬est rate levels are the key factor when looking at major currencies at present, which may give some indication why GBP/EUR is so weak, giving the prospect that the ECB may pull the interest rate trigger as early as next month. The report released yesterday, a gauge of sentiment which aims to predict economic developments in the UK four months in advance, fell to 1 from 3 in February—London-based Lloyds Banking Group Plc said yes¬terday. The share of companies that were less optimistic about economic prospects increased to 44% from 36% in the previous month. The pound fell against 13 of its 16 most-traded pears and touched its lowest level versus the dollar in eight weeks. Data due today is forecast to confirm the UK economy shrank more than initially esti¬mated in Q4. BoE policy maker Adam Polsen warned inflation will drop to 1.5% in 2012 as the economy weak¬ens. Data 09.30: Final GDP q/q expected –0.6%, Current Account –10.3B from –9.6B.
Traders could be forgiven for wondering why the euro is at such strong levels against the majors consid¬ering the political troubles sweeping through the eurozone. Turmoil in Portugal as it wrestles with a possible EU bailout and an up and coming election, Germany’s Angela Merkel losing a key battleground in the heart of Ger¬many in recent elections should normally see at least a ripple spread through the single currency, but not so. The markets seems to be shrugging such events off and focusing on the up and coming eurozone interest rate decision, where markets are expecting the ECB to raise interest rates. This is seeing players invest in the euro in anticipation of higher returns, something they wouldn’t receive from being invested in either the pound or dol¬lar. But how long can markets solely focus on just potential interest rate rises? No major data.
• The Australian dollar rose toward a record high and New Zealand's currency halted yesterday’s fall after Asian stocks reversed declines, boosting demand for higher yielding assets. Demand for the Kiwi was also bolstered after a report showed New Zealand’s exports increased by more than economists fore-cast. Australian dollar was supported before reports on March 31st forecast to show retails ales climbed for a fourth month and home-building approvals improved.
• The looney (Canadian dollar) rose versus 15 of its 16 most traded peers as Oil, the nations biggest ex¬port, traded within $4 a barrel of a 30-month high amid concerns supply may be disrupted and specula¬tion the economy is improving.
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