Sterling falls to seven-month low versus euro; markets eye UK Q3 GDP figures
26/Oct/2010 • Currency Updates•
Yesterday sterling rose against the dollar and fell close to a seven-month low against the euro ahead of today’s GDP data. Sterling fell to its lowest in nearly seven months against the euro on yesterday, weighed down by the possibility the Bank of England could extend quantitative easing if we see weak GDP data on today. Poor figures would point to a stuttering UK recovery. The pound was up against a broadly weak dollar and down against the yen. Sterling rose against the weak dollar as a Group of 20 agreement to shun competitive currency devaluations was viewed as a green light to resume dollar-selling on expectations the Federal Reserve will ease monetary policy next week. Sterling has underperformed most currencies other than the dollar since BoE minutes last week showed one policymaker, Adam Posen, voted for an extension of quantitative easing.
Dollar traders lost interest on Monday after the weekend’s G20 meeting left many traders uninspired and resumed dollar selling on the back of expected stimulus. The meeting of finance ministers on Friday resulted in agreements such as “refraining from competitive devaluation of currencies” but the rather hollow statements failed to relieve pressure on the dollar, instead it fell across the board. The dollar is expected to remain under pressure ahead of a widely anticipated second round of ‘extraordinary monetary policy measures’. With the US Federal Reserve set to pump more money as early as next week to spur a flagging economy but still no clear consensus on how much cash they will inject, analysts expect the dollar to stay choppy. Even upbeat US economic data such as a 10% rise in existing home sales failed to support the greenback yesterday.
The euro performed well yesterday as sterling and the dollar remained under pressure due to the prospect of further quantitative easing. However, it is not all rosy in Europe as President Nicolas Sarkozy’s government warned that strikes against pension reform have cost the French economy up to three billion euros, as cracks appeared in a trade union fuel blockade. Elsewhere, blistering growth in Germany is aggravating the growing gap between the euro zone’s North and South and may force the European Central Bank to tighten monetary policy long before the high-debt states are ready, Standard & Poor’s has warned.