Pound continues to fall

Pound continues to fall
Sterling hit a 2 1/2-month low against the euro on Wednesday as investors continued to dump the UK currency after the yield on the two-year gilt hit its lowest level ever.

Asian markets appreciated this morning on the back of the second consecutive increase on U.S. housing prices and consumer confidence. The Euro has remained rangebound, while the Pound declined further. This has caused Sterling exchange rates to continue the recent downward trend. Rates at 08:30am 26th August are as follows:

  • GBP/EUR 1.1397
  • GBP/USD 1.6328
  • GBP/AUD 1.9484
  • GBP/NZD 2.3708
  • GBP/CHF 1.7313
  • GBP/CAD 1.7731
  • GBP/ZAR 12.668

Sterlings Weakness
Sterling hit its lowest mark in two-and-a-half months against the euro yesterday as interest rate and bond yield spreads moved against it, and lost ground against the dollar despite equities recouping earlier losses.

The news was concentrating on the fact that British mortgage data on Tuesday showed that mortgage approvals in July jumped to their highest in 17 months, an increase of 7%, but growth in net lending was the weakest in nine years.

“We’ve had a cumulative build in risk appetite during the day … but one thing that’s been striking has been the powerful upswing in cable is starting to peter out, and euro/sterling is starting to trend higher,” said Robert Minikin, senior currency strategist at Standard Chartered in London.

As you can see from the drop in rates, markets reacted little to the mortgage news, instead concentrating on the deteriorating UK budget position and Bank of England’s aggressive quantitative easing programme will weigh heavily.

The US budget deficit will soar to almost $1.6 trillion (£979bn) this year, the highest on record, both the White House and Congress have warned. Fuelled by President Obama’s $787bn stimulus package and reduced tax revenues due to the recession, it compares with a $455bn deficit in 2008.

The White House says the deficit will grow further, predicting it will hit a cumulative $9tn from 2010-2019. However, it continues to expect the US economy to start to recover this year.

Usually you would expect this to weaken the US Dollar, and cause GBPUSD rates to rise. However, in the current economic turmoil, news like this simply spooks investors that are worries about the global economy, and actually drives these investors back to the US Dollar strengthening it, which is why rates have not risen.

Todays Data
We have already had import price data from Germany, coming in roughly as expected. There’s nothing much for the UK, with the rest of todays data all from the US. This could well affect pound rates against all currencies, as good news from the US will spur investment into risker currencies such as the pound, and negative data causing a flood back to the dollar which will cause the pound to fall.

US Data
13:30 Durable Goods and Mortgage Applications
15:00 New Home Sales,
15:30 Crude Oil Stocks Change
17:00 Fed Speech

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