Pound remains weak against EUR, AUD, NZD & USD

The pound had a torrid week last week, as poor UK data from the banking sector and the Bank of England caused rates to hit a 4 month low against the Euro. At 08:30am monday 21st September, rates stand as follows:

  • GBP/EUR 1.1036
  • GBP/USD 1.6175
  • GBP/AUD 1.8744
  • GBP/NZD 2.2946
  • GBP/CAD 1.7377
  • GBP/ZAR 12.118
  • GBP/JPY 148.77

Why did the pound fall?

Sterling slumped to a 4 month low against the euro last week, stung by news that the UK government was tightening the terms for one of the nation’s banks to exit its asset-protection scheme, which underlined the ongoing fragility of the UK banking sector. Sterling suffered broadly, hitting a two-week low versus the dollar, a 4 month low against EUR, and hovering around a two-month trough against the yen.

The pound clawed back from some of those levels after figures on UK public sector finances were not as dismal as markets had been expecting, although they were the worst for an August on record. Lloyds Banking Group said on Friday it was in talks over a possible reduction in the number of toxic assets it might place in the so-called asset protection scheme, encouraged by “improving economic conditions”.

The market has been swinging between optimism and pessimism about the UK financial sector, and the Lloyds story is obviously not so good for sterling right now. Signs of weakness in the UK and global banking sector tend to hit sterling hard given the large role that the financial sector plays in the British economy. Also knocking the pound were comments from Bank of England policymaker David Miles, who told the UK’s Independent newspaper the UK could be out of recession in six or nine months, but that the road to recovery could be long and slow.

As we will see in a moment, there isnt much UK Data this week other than the mintutes from the Bank of England, so the pound will likely remain under pressure this week.

This Weeks Data
This week is fairly quiet in terms of UK data, with the main release of note being the Bank of England Minutes to their recent interest rate decision. The MPC meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. With recent Sterling movements being largely influences by Bank of England policy, we will watch any comments closely, as they are likely to affect pound exchange rates.

In Europe, we have various inflation data that will give a good idea where interest rates may go for the EU. If figures support the case for higher rates, then expect GBP/EUR rates to drop.

For New Zealand, watch for the Gross Domestic Product data on Tuesday. This is a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. A rising trend has a positive effect on the NZD, while a falling trend is seen as negative (or bearish) for the NZD.

In the US, we have the majority of this weeks data releases. Watch for the FED interest rate decision, Consumer Confidence Data, Mortgage Approvals and Jobless data. This US data will likely be the main driver for rates this week, due to risk sentiment. Good US figures at the moment drive investment into riskier currencies with a higher yeild such as AUD and NZD, which strengthen these currencies and weaken the dollar. Poor figures drive investors back towards USD strengthening the reserve currency.

Monday
Aus – New Vehicle Sales
NZ – Credit Card Spending

NZ – Current Accounts

Tuesday
Can – Retail Sales
US – Housing Price Index
US – Manufacturing Index
US – Consumer Confidence
NZ – Gross Domestic Product

Wednesday
Ger – Purchasing Managers Index
EU – Purchasing Managers Index
EU – Industrial New Orders
UK – Bank of England Minutes
UK – Mortgage Approvals
US – Mortgage Applications
US – Fed Interest Rate Decision

Thursday
Ger – IFO Business Climate
US – Housing Starts
US – Jobless Claims

Friday
Ger – Producer Prices
EU – Current Accounts
UK – Money Supply

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