Pound falls after better news from the EU

The pound fell against the Euro and US Dollar yesterday after weaker than expected UK services sector survey. Also, the European Central Bank detailed steps to withdraw monetary stimulus, which strengthened the Euro and caused rates to fall. We’ve seen some recovery this morning however, and at 08:30am rates are as follows:

  • GBP/EUR 1.1028
  • GBP/USD 1.6623
  • GBP/AUD 1.7951
  • GBP/NZD 2.2957
  • GBP/CAD 1.7558
  • GBP/CHF 1.6617
  • GBP/ZAR 12.219
  • GBP/JPY 146.43
  • EUR/USD 1.5069

News from Europe
The European Central Bank yesterday left rates on hold at 1% as expected, and this news did not really affect exchange rates. The speech afterwards however caused the Euro to strengthen and Pound to Euro rates fell as a result. They announced they would be lifting the stimulus measures, which signalled that the EU economy is recovering. The ECB announcement pushed sterling lower against the euro as it highlighted the market’s view that the Bank of England is set to lag behind other major central banks in terms of exiting measures like Quantitative Easing.

As other economies recover faster than ours, their interest rates will start to rise, giving strenth to the currencies. As the Bank of England have already said that our interest rates will stay at record lows throughout 2010, and so the forecast for next year doesn’t bode well for Sterling.

Poor UK PMI Data
In further negative news for sterling, the Chartered Institute of Purchasing and Supply/Markit activity index was lower than expected. “The UK services PMI was weaker-than-expected which highlights the likelihood of an underperforming UK economy. This sets sterling up for potential disappointment given that so much optimism about the UK economy had been priced in,” said BNP Paribas currency strategist Ian Stannard.

Swiss Franc (CHF)
The dollar continued to probe support levels below parity against the franc on Thursday and hit a low of 0.9960 before rallying back above the 1.00 level later in the US session. The Euro ended little changed against the franc, still significantly below the 1.51 level.

The ECB was slightly more dovish than expected which will provide some near-term franc support. There is still likely to be considerable caution ahead of the quarterly monetary policy meeting next week. Speculation of further National Bank protests against franc strength
will tend to curb Swiss currency support.

Todays Events
All the data today is from the USA. We have employment data, but the most important release to look for is the Non-Farm Payrolls. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and therfore hard to predict. So, any difference to the predicted figure can cause USD volatility. We’re expecting the decision at 13:30pm to show a negative figure of -111k. If it’s more than this, expect GBPUSD rates to climb, and vice versa.


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